What Are Your Options for Fixing Your Home Loan Rate?

Fixing your home loan rate is a decision about peace of mind as much as maths. If you are weighing up a switch from a variable interest rate to a fixed one, the aim is to find a loan that suits the next chapter of your life, not just chase a number.

For many Noosaville homeowners, that chapter might be a growing family, a career change or a plan to renovate near the Noosa River. Each calls for a different kind of loan, so it helps to start with what you want your repayments to do for you.

Should I Refinance to Switch From Variable to Fixed?

You can switch to a fixed rate by refinancing with a new lender or by moving to a fixed product with your current lender. It makes sense when certainty of repayments matters more to you than flexibility, and when the overall costs of moving stay below the benefit.

ASIC's guidance for lenders says a refinance should be weighed on overall cost savings against any loss of benefits, or on whether the new loan better meets your goals even if savings are small. That test is a handy one for you too. A home loan health check is a good first step, because it shows what your current loan does well before you give any of it up.

If your current fixed term is ending and you are deciding what comes next, our page on fixed rate expiry covers your choices.

What Does It Cost to Switch to a Fixed Rate?

Moving from a variable loan to a fixed one does not trigger a break fee on the old loan, because break fees apply when a fixed rate loan ends early. You may still face other costs, and they vary by lender.

Moneysmart lists the usual ones: a discharge fee when you close the old loan, an application fee on the new loan, and a switching fee if you stay with your current lender. If you have less than 20 per cent equity, lenders mortgage insurance may also apply. Ask each lender for its figures in writing before you commit to a refinance application.

If your loan is under the Australian Government 5% Deposit Scheme, check the rules first. Housing Australia says refinancing with a lender that is not a Participating Lender is treated as full repayment of the loan, and the scheme benefit is lost.

Fixed Rate Trade-Offs: Offset, Redraw and Extra Repayments

A fixed rate gives you repayment certainty, but the trade-off is less flexibility. Features such as an offset account, redraw or extra repayments are often limited on fixed loans, and the rules differ between lenders.

This matters if you like parking savings in an offset account or topping up repayments when work is busy. Ask any lender you are considering whether you can use a refinance offset account or refinance redraw on the fixed portion, and whether there is a cap on extra repayments.

There is a second cost to keep in mind. If you end a fixed loan early, a break fee can apply, and it depends on how rates have moved since you fixed. Selling, upgrading or refinancing again during the fixed term could be more expensive than you expect.

Some borrowers split the loan, fixing part and leaving part variable. That keeps some flexibility, though the fixed portion still carries the limits above.

What a Fixed Repayment Looks Like at 6.75%

Fixing locks your repayment for the fixed term, so you know the figure in advance, but you will not benefit if variable rates fall. The example below is illustrative and uses 6.75% p.a. as the fixed rate.

Consider a homeowner with a $500,000 balance and 25 years left on the loan. They have a young family and a tight monthly budget, and a repayment rise would hurt. They refinance and fix at 6.75% p.a. Their principal-and-interest repayment comes to about $3,455 a month, and it stays there for the fixed term.

Now compare it with a variable loan over the same term. If the variable rate rose by one percentage point to 7.75%, the repayment would be about $3,777 a month, roughly $322 more. If it fell by one point to 5.75%, the repayment would be about $3,146, roughly $309 less.

In this scenario, the borrower chose certainty. Their budget stayed steady and they planned around a known figure. They accepted that they might pay more than variable borrowers if rates fell, and that exiting early could cost them. You can test your own numbers with our mortgage repayments calculator.

Is Fixing Right for Noosaville Homeowners?

Fixing is worth considering if your budget has little room for a repayment rise, and less suitable if you want to make large extra repayments or might sell or refinance soon. Noosaville is part of the Sunshine Coast region, and homeowners here have the same range of goals as anywhere, from keeping the household budget steady to planning a renovation.

A few questions can point you in the right direction:

• Will you need to sell, upgrade or refinance again within the fixed term?
• Do you rely on an offset account or redraw to manage cashflow?
• Would a repayment increase put real pressure on your household?

If you answered yes to the first two, a variable or split loan may suit you better. If the third is your main worry, fixing at least part of the loan may be worth exploring. A mortgage broker in Sunshine Coast can compare lenders for you and explain the costs of each option. Our refinancing team also checks that any switch passes the overall cost test, so you are not moving just for the sake of it.

If you would like to talk it through, call one of our team or book an appointment at a time that works for you. We will look at your loan, your plans and your budget, and help you choose a path that fits your life.

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