Sydney, Australia -- (SBWIRE) -- 01/07/2016 -- A new year is upon us, and the first thing that many home owners turn their attention to is whether the RBA will raise the cash rate at their first meeting for the year.
While the everyday homeowner might find these decisions hard to predict, speculation is rife that the beginning of 2016 will see a rise in interest rates. It's an unfortunate fact that when variable interest rate hikes kick into gear, many homeowners start paying more interest on their home loans.
However, if you're a first home buyer and have only saved a small deposit, or you're looking to budget, then a fixed term loan could be the better option for you at this point in time. This way you can ignore rate rises and you'll be satisfied with the knowledge that you're paying less than the variable rate.
But be careful – while fixed loans might look good on paper, it's important to be wary of fees.
While a fixed rate loan will give you certainty as to how much you'll be repaying each month, you face the possibility of having to pay high breakaway fees if you wish to make any early repayments. However, there are lenders who do offer the option to make extra repayments without penalty. It's a good idea to use a comparison tool, such as this one from Tomorrow Finance, which allows you to compare the different deals from the big four banks and other smaller lenders. This way, you'll know exactly what fees you might be up against.
Tomorrow Finance's Adam McKnight says that splitting a home loan is another alternative for those who are attracted to the fixed rate option but still wish to reap the benefits of future cash rate drops.
"This option allows you to make extra repayments into the variable half of the loan without paying high penalties", he says.
"Many lenders also offer the option of setting up a mortgage offset account, which acts as a regular transaction account, but it is linked to your home loan."
How it works is that the credit in your account is offset on a daily basis against the balance of your home loan, which reduces the interest payable on your loan.
"But always make sure you choose a fixed loan that offers a 100% offset account," McKnight warns.
While the risk of fixing your home loan is that it's hard to predict if rates will fall any further, this option definitely provides certainty to home owners who are risk averse and eager to set a budget. With more and more competition in the home lending market, there's sure to be a competitive deal to suit most home owners.
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