What is a fixed-rate home loan?
Fixed-rate home loans are mortgage solutions where the interest rate remains fixed throughout a portion of the loan.
That means the borrower’s monthly principal and interest payments remain the same from the loan is taken out until the fixed period finishes. Once the fixed rate expires, your loan automatically reverts to a variable loan.
With a fixed-rate loan, your interest rate will be fixed for a predetermined amount of time, typically between one and five years. You can anticipate regular monthly payments with a fixed-rate mortgage, making planning and budgeting for housing costs easier over the loan.
In other words, since the interest rate is fixed, you will have financial predictability and security because you know how much interest you will pay on the loan
In times of economic uncertainty or when interest rates are anticipated to rise, fixed-rate mortgages protect borrowers from rising interest rates, which can be very advantageous.
How do fixed-rate home loans work?
Like other mortgages, you must get pre-approval with your lender and qualify for a fixed-rate home loan. During the evaluation process, your income, credit history, and work status will all be considered to establish your loan eligibility and the interest rate you qualify for.
Moreover, the market economy and your financial situation both play a factor in determining your fixed interest rate. With a mortgage broker on your back, we will facilitate your loan application and negotiate with your lender so you get the best rates available.
What lenders look for when you apply
Lenders evaluate your creditworthiness and financial status by checking your credit score, credit history, proof of income, and other relevant documents.
Your credit score is one of the most essential factors in the lender’s decision-making process. Better loan terms are typically associated with a higher credit score. That said, a higher credit score shows you’re a low-risk borrower.
On-time payments, late payments, collections, bankruptcies, and other bad credit occurrences are among the things they look for.
Your chosen lender’s evaluation standards and loan terms may change depending on whether the loan is used for a new home purchase, refinancing, or another purpose.
Depending on your financial condition and the lender’s criteria, you may also need to submit more financial evidence, such as letters of justification for particular parts of your application or proof of assets.
Talk to us at 1300 030 388 to learn more.
Flexible Fixed Rate Loan Features
Our lenders provide adjustable-rate loans that permit borrowers to make additional or more oversized payments without incurring fees. This lets you pay your mortgage more easily and reduce interest payments.
In addition to your regular monthly payments, you can make partial prepayments toward your outstanding balance. Prepayments like this can assist in shortening loan terms and lower overall loan balances.
In some situations, lenders offer borrowers with fixed-rate loans a rate lock option, which ensures you get the rate when you lodge the form or a lower interest rate if rates drop before the loan settles. During the loan application procedure, this offers security against a rate increase.
Fixed-rate loans can also allow for interest-only payments for a predetermined time, usually the first few years of the loan. Paying only the interest on the loan during this time enables borrowers to make lowered monthly payments.
A lower interest rate on their fixed-rate loan may be possible for borrowers with excellent credit or who satisfy specific requirements and are eligible for interest rate discounts or incentives.
Mortgage Tips on Landing the Best Deals
Like other loan types, fixed-rate loans need proper evaluation and long-term planning to ensure whether or not they work for your needs.
Why long-term? That’s because signing a home loan deal ties you to your chosen lender throughout the life of your loan. Refinancing on another bank will incur a break fee or exit fee. So it’s best to understand all your options before taking the next big leap.
Here are three tips to ensure you’re getting more value with a fixed-rate loan:
Picking the right loan, fixing it at the right time
Choosing the right fixed-rate loan at the right time ensures that you’re locked at a time when interest rates are the lowest. You don’t want to sign a fixed-rate loan only to find out interest rates are dropping in the next few months.
By fixing your rate when the economy is strong and interest rates are low, you can better protect your finances against credit problems and market instability.
Unfortunately, most of us fix when interest rates are high out of concern that they may rise further. But remember that three to five years is a long time, and a lot can happen to the market, so give yourself plenty of time and have our senior mortgage brokers help you decide on the interest rate you want to pursue.
The Loyalty Tax
Most people rely on loyalty and familiarity when getting a fixed-rate home loan. This approach, however, exposes you to loyalty rates that can be higher than most banks.
Think about it. Banks and non-bank lenders offer rate discounts to attract new customers. But once you become a regular and trust your bank/lender enough, they will increase the rate and you may not mind it, as trust matters more than a slight increase in interest rate.
Aside from loyalty rates, different lenders have a unique outlook on future interest rates. Hence the varying rates for home loans.
With our senior mortgage brokers on your back, we’ll take you through all our lenders’ fixed-rate solutions so you get the best rate in the market.
Determine whether fixing your rate works for you
Many borrowers who apply for fixed-rate loans might fare better with a variable rate. Here’s why:
- Variable rates have lower initial rates
- Most variable rates have no exit fee
- Variable rates are, well, variable. You may get a lower total interest rate and benefit from rate drops
But fixed-rate home loans also come with great benefits, including:
- Interest rate predictability and immunity to large rate spikes and market volatility
- Borrowers are more capable of budgeting and managing their finances
Note that fixing a home loan rate isn’t for everyone. If you plan to make a large lump-sum payment or refinance your mortgage, we recommend steering clear from fixed rates and exploring other options like LMI waivers, first home buyer, and investment property loans with us today.
Get the best fixed-rate loan with Mortgage Pros
A fixed-rate home loan is ideal for those looking for stability and predictability in their finances as they pursue homeownership.
Our senior mortgage brokers can help you determine whether a fixed-rate mortgage suits your circumstances and weigh its pros and cons within your context.
Mortgage Pros is here to assist you as you navigate the complex mortgage industry to get the best possible fixed-rate loan for your house.
Finding the right loan is an essential step in your journey toward becoming a homeowner, and our knowledgeable team of mortgage professionals is well aware of this.
Your aspirations of becoming a homeowner are achievable, and Mortgage Pros is committed to helping you realise them. Contact us at 1300 030 388 or with an online enquiry to explore the best fixed-rate loan options and start building your future today.
Frequently Asked Questions
What does rate lock mean?
A rate lock is a legal arrangement between a borrower and a lender that ensures you get the fixed interest rate when the rate lock form is lodged.
One of the issues with fixed-rate loans is without rate lock, you won’t get fixed rate at the time of applying for the loan. Rather, you will only get the fixed rate when the loan is settled (upon funding). Rate lock ensures you receive the rate when you lodge the rate lock form or lower if fixed rates drop.
On average, the time from applying for a loan up to settlement takes 1 to 2 months. That gives ample room for banks and lenders to adjust their fixed rates. It’s important to consider this when determining fixed-rate home loans, especially in high market volatility.
Moreover, banks will charge for rate lock anywhere from a few hundred to a few thousand dollars, depending upon the bank and your loan amount.
What about the break cost?
When you pay off a fixed-rate mortgage early, ask to shorten the fixed-rate term, or refinance/switch loans with another bank, you must pay a break cost or exit fee.
The break cost, which can occasionally be large, compensates for the lender’s interest loss by prematurely exiting the loan. These expenses are meant to pay for the interest income the lender anticipated throughout the specified time frame.
Will my interest rate vary while at a fixed rate?
No. That’s exactly what sets fixed-rate home loans apart from others. During this fixed-rate period, you get:
- Interest rate stability
- Protection from market volatility
You also get more control over your budget as payments become more predictable and recurring. But note that at the end of the fixed rate agreement, your interest rate will become subject to market rates and fluctuate according to market conditions.
It’s crucial to understand the terms and conditions included in your fixed-rate home loan policy so you know where you stand from here moving forward. Feel free to speak with our senior mortgage brokers and discuss what fixed-rate home loan solutions best suit your unique needs.
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