With the cash rate sitting at a historic low of 0.1% and motivated buyers keen on entering a booming property market, there is a large influx of unbelievably low fixed-rate home loans. A closer look and deeper analysis, however, reveal several pitfalls. Here’s what you should be mindful of while considering a fixed rate home loan.  

Opportunities to pay off the mortgage faster 

Flexibility to make larger repayment more frequently is crucial to paying off a mortgage sooner, securing quicker homeownership and consequently shaving off thousands on interest payments. Unfortunately, most fixed rate offerings don’t allow for this kind of flexibility and may adversely impact borrowers in the long run. Take this example 

 

As you can see with the variable rate, the borrower has paid off more than double the loan amount, is on track to quicker homeownership and will save a substantial sum in terms of interest. 

Other Fees 

Closely examine the break fees associated with a fixed rate offering should the borrower wish to switch lenders. This consideration should be made before opting for a fixed rate product. Additionally, many fixed-rate offerings come as part of a packaged deal where credit cards and income insurance protection are rolled in. Check if the borrower will benefit from these add-ons to ensure that the home loan applicant is paying for something that isn’t likely to be used. 

Revert Rate 

There have been occasions when a home loan with a very low fixed interest rate reverts to a variable rate higher than the market offers once the fixed-rate period ends. Double-check the fine print of the revert rate of the fixed-rate home loan. 

Loan Features 

Most no-frill fixed-rate home loans are low on features as well. Benefits like an offset account, redraw facility, loan portability, and opting for a split loan can offer considerable advantages in terms of savings and convenience. Don’t compromise on necessary facilities for a low rate. It could result in adverse financial outcomes for borrowers in the long term. 

Despite a higher rate, a variable rate home loan with good features can provide any borrower with superior financial advantages in the long run. 

In addition to a great rate, Resi packs some significant saving promoting features into its home loans. We also have a short turnaround time and straightforward application process. To reach us for a discussion, click HERE.