With interest rates at an all-time low, most homebuyers are asking the tough question “should I fix my loan or not?”
Rising interest rates can have a big impact on your lifestyle. And because of this, you should consider your future plans, your budget, and your financial flexibility when deciding whether or not to settle your loan.
A fixed-rate mortgage loan allows you to lock in an interest rate for a certain period of time. The most popular term runs from one to five years. During this period, your interest rates and monthly payments remain the same, whether or not lenders change their interest rates. At the end of the fixed term, you have the option to lock the loan back in or switch to a variable rate loan option. Whether you’re new to the homebuying business or looking to purchase a second home or property, it could be the right time to opt for a fixed-rate home loan. Locking in your mortgage loan rate is one way to manage risk. If raising interest rates would have a significant impact on your ability to repay your loan, then locking in your rate makes a lot of sense.
However, before making such an important decision as fixing your home loan, there are several factors to consider. First, you should look for a lender that offers some flexibility, and you should also ask yourself and maybe get some advice on how things might turn out three or five years from when you’re considering arranging your loan. Fixing for a shorter period may make more financial sense as you watch market trends.
Do you love certainty? The main advantage of fixed-rate home loans is the fact that you can sleep better at night and even plan ahead because you already know what your monthly obligations are. However, one of the downsides to going for a fixed-rate home loan is that most lenders won’t let you pay off your loan early or make extra payments without incurring penalties.
If you are still undecided, there is always the option to have your cake and eat it. The split loan option gives you the opportunity to have part of your loan fixed and the other part subject to a variable rate.
Once you’ve done your homework and decided which type of loan to choose, always remember that if you don’t ask for it, you won’t get it. If you are using a mortgage broker, ask the broker to negotiate the most flexible option that suits your financial situation.