The Mortgage Supply Co | 19 Nov 2019 | Mortgage Tips,Refinancing

Pros and Cons of Fixed-Rate Mortgages

The Mortgage Supply Co | November 19 2019 | Mortgage Tips, Refinancing

Pros and Cons of Fixed-Rate Mortgages

mortgage-rate-fixed

Getting a mortgage can be overwhelming, particularly when there are so many different options for fees, formats and interest rates. All these different factors affect your loan costs and how quickly you pay the mortgage, so it’s important to make a well-informed decision.
There are fixed-rate mortgages, flexi-rate, and floating rate mortgages, each more suited to a different type of homeowner. With so much information out there, we’ve broken down the pros and cons of a fixed-rate mortgage for you.

What is a fixed-rate mortgage?

A fixed-rate mortgage is when the interest rate you pay is fixed for a period of 6 months to 5 years.

Advantages:

Consistency

As the rate is fixed, you know exactly how much each repayment will be. This is highly beneficial to help with budgeting. Each fortnight (or month) you can correctly delegate your money for bills, knowing your mortgage repayment will remain the same.

Competitive

With fixed-rate mortgages, banks will often compete with rates. This can result in a lower interest rate for the home-owner as the banks compete for your loan, which will then remain fixed for your agreed period of time.

Locked-In

Fixed-rate mortgages also mean you can lock in a low rate. If the mortgage prices are rising and you gain a loan at a low-point in interest rates, you will have secured that price for the rest of your fixed rate loan term, resulting in you potentially saving thousands of dollars.

Disadvantages

Risk

If you take a long-term fixed-rate mortgage, you run the risk that the floating mortgage rate will drop lower than your agreed term. This results in you potentially paying a higher rate than necessary, than if you were on a flexi or floating rate mortgage.

Break fee

While providing consistency in your home loan rates, a fixed-rate mortgage may also charge you a ‘break-fee’ if you want to break out of your loan earlier than intended. This is because the banks don’t want to lose your loan and business. This is important to remember if you intend on selling the property quickly. Don’t be afraid to ask the important questions and make sure you fully understand your agreement with your bank.

Limits

Alongside a break fee, banks also limit the ability to raise repayments or make extra payments to your fixed-rate mortgage. Just like the loan provides consistency for you, the banks also enjoy that consistent repayment and don’t want to allow you to pay off your mortgage quicker.

Making the right choice in a mortgage can save or cost you thousands. While it’s an important and sometimes overwhelming decision, don’t let your mortgage stress you out. Get in contact with us, and we can help you find out what you can borrow, and help you along your entire mortgage process.

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