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The Risk of Fixing Your Home Loan

We have seen over the last year or so that rates have trended down and rates have looked attractive on both the shorter terms and longer terms, so we wanted to have a quick chat to help you understand what the pros and cons are of both. 

The long-term fix

Is there risk in fixing your loan for a longer-term while the rates are lower – the short answer is yes.

If you want to fix the interest rates on your loan for 5 years and then decide that you want to ‘break’ that loan term (to sell, or get better rates), you will incur what we call ‘break fees’ – and that fee is dependent on how big your loan is, how much longer your fixed term is and what the trend in interest rates are doing.

Check out my current thoughts about long-term fixing here 

The Short-Term Fix

Is there risk in fixing your loan for shorter-term while the rates are lower? The short answer here – yes.

If you decide to fix your loan for a shorter period of time, you run the risk of the rates increasing in the next year or so, and when your fixed term is up, you are going to have to move to higher interest rate. 

Fixing for a longer term might make you the friend to be envied when rates start to increase and you have the advantage of a lower rate being locked in. Or you could be the friend with rate-envy, wishing that you weren't locked in for three more years, as lower rates starts to emerge and you can't take advantage of them without there being a cost. 

What About Floating?

Floating might be the right answer for you, but again no option is without risk. 

If you float your loan in hopes rates getting lower, they could trend up – or increase significantly overnight as we have seen in the past. 

Risk Averse or Risk Tolerant?

There is no way to completely avoid risk in the housing market – but there are ways to minimise it

Our advisors are all trained to help you weigh up the pros and cons of fixing or floating for a good time or a long time and how that looks in your situation. We ultimately want the best for outcome for every individual – it might sound cheesy, but we really mean it! 

We have a team who love to match pace -  whether you need something a little more stable, or someone to cheer you on as you take a risk - we are here for it all and would love to chat with you. 

Check out my video below for some more yarns about short-term fixed rates vs. long-term rates and what that means for you