Since 1999, we have seen a lot of home loans go through our Rockingham office. One of the most important factors in deciding upon a loan is whether to borrow with a variable rate or a fixed rate. On the surface, it seems to be a “no-brainer” right now. The interest rate is at an all-time low and it is wiser to borrow at a fixed rate. However, there are more things to consider.
The first thing we must make clear is that the information here is general and is not meant to substitute for an individual consultation with a professional mortgage broker. Everyone’s financial situation is different; many people fit into the “norms” but many don’t. It is essential that you contact a professional mortgage broker if you are considering a home loan in the Rockingham, Baldivis or Kwinana areas.
Total Cost of the Loan
We believe the most important factor is the total cost of a loan. That takes into consideration principal, interest and fees. Fees are an important part of any loan. Lenders charge fees to recoup marketing costs and to defray future loss of revenue. In 2011, exit fees were outlawed, but only on some mortgages. They aren’t called “exit fees” anymore; they are now called “break fees.”
Break fees were originally introduced to keep borrowers from fixing a high rate and changing to a variable rate when the interest lowers. Lenders want to make as much money as they can from their loans and want to remove the chance of profit from what they see as “abusing” the system. In addition, many fixed rate loans have penalties for paying the loan off early because they are losing income that the interest would have provided.
Before taking out a fixed rate loan, you should always know all fees, especially break fees. They can negate the benefits of paying a loan off early.
Call (08) 9527 1800 to learn more.