A significant number of lenders have been setting about putting up their fixed mortgage rates over the past three weeks. This usually indicates that the banks are expecting interest rates to go higher.

The rate cycle hit rock bottom a few months back and since then the fixed rates have been steadily climbing

Arguments for fixing

Repayment certainty is the predominant reason for fixing your home loan. A lot of people budget on certain repayments to be made and therefore a fixed home loan is the answer for this type of borrower.

If you are concerned about job security or you think our economy will recover to a point where inflation takes off and the Reserve Bank is forced to put rates up, then fixing can give you a high level of financial certainty.

Arguments against

The downside is most fixed rate home loans are inflexible. You can’t make extra repayments and if you need to change your loan or sell your house, expensive break costs apply.
Break costs are applicable when you sell your property or want to move your fixed rate loan to another product or swap to another lender altogether. This is probably the biggest reason to consider when fixing your home loan.

Before fixing your home loan always consider how long you intend keeping your property and be mindful of any factors out of your control which might force you to sell your property or change your home loan before the fixed period has expired.

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Break costs are a penalty incurred for early repayment of a fixed rate home. They are imposed by the lender as a way to recover interest they may lose if you break a fixed rate contract to move to a cheaper loan.

The size of your break costs will be determined by the term you fix for (number of years), the rate you’ve fixed at and the margin between that fixed rate and prevailing interest rates at the time you break the contract.

Break costs can also apply on some fixed rate home loans even if you simply want to sell your current home and upgrade. Read the fine print with all your loan contracts as not all fixed loans have a portability clause which says you can continue your home loan if you change properties.

Depending on lender and term and conditions of loan contract, break costs can be extremely expensive.

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