Effie Zahos

Effie Zahos

Should you lock in your home loan rate?

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More often than not home owners get the timing wrong when it comes to whether or not they should lock in. I guess it’s the same for investors who buy in a bull market and then sell in a bear. Panic often drives our behaviour so it’s important to look at the facts before you jump in.

Yes, three-year fixed rates are very low right now. And yes, according to Canstar, variable rates would have to drop by 0.5 percent to catch up.

But with some experts predicting another rate cut before the year is out, this difference could quickly close in a matter of months.

Remember also that most home loans sold these days are packaged loans meaning an interest rate discount of up to 0.8 percent can apply. Be sure to factor this in when comparing the difference between a fixed and so called average standard variable rate.

New homeowners can pick and choose who they lock in with. Existing homeowners unfortunately will have to factor in any refinance costs if they wish to lock in with an alternative lender. This could wipe out any benefits of moving in the first place.

Locking in buys certainty and this does not come without a price. Substantial break charges can apply if you bail out before the fixed term expires. Splitting your loan into two portions – a fixed rate and a variable rate can offer some protection here.

Your decision should really rest on what you’re comfortable with.

If you’re keen to hear more home loan tips don’t forget that as a Money reader you can grab yourself some free tickets to the Melbourne Home Buyer & Property Investor Show - Friday, October 5 to Sunday, October 7. The show, at the Melbourne Convention & Exhibition Centre, will feature other property experts including Margaret Lomas, Chris Gray, Bryce Holdaway and Damian Collins.

If you’re more interested in shares, then the Trading & Investing Seminars & Expo will be at the same location from Friday, October 5, to Saturday, October 6. You can catch presentations and seminars from experts including Chris Caton, Marcus Padley and Roger Montgomery.

To obtain your free ticket, simply visit www.homebuyershow.com.au or www.tradingandinvestingexpo.com.au, and when asked to enter the promotional code simply type in MONEY for your free ticket – a saving of $18!

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