Choosing a Fixed-Rate or Variable Mortgage

The Reserve Bank has cut the cash rate to a historic low of 2.5%. This has led to some speculation about whether it is a good time to lock in a fixed-rate mortgage.

According to commentator Penny Pryor, doing so means one is betting against the banks and anyone considering a fixed loan should understand the benefits for their personal situation.

Fixed rates can be inflexible in regards to extra repayments or paying off the mortgage early. Extra repayments may attract a fee and loans with longer terms may come with restrictions on extra repayments.

Pryor said a good option for some people may be to fix a portion of their loan, which allows the borrower to take advantage of lower rates without too much inflexibility.

Pryor also suggested that borrowers look at the comparison rate rather than only the low fixed rate when shopping for lows.

Locking in a fixed-rate loan could be a good idea as long as the borrower has done their homework.

Source: http://www.smh.com.au/money/borrowing/a-quick-fix-or-simply-smart-20130803-2r66v.html

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