09 Dec 5 Questions To Ask Before Fixing Your Mortgage Rate
With a fixed rate home loan, you know exactly what your repayments will be for a set period of time. That makes budgeting easier and it saves you money when interest rates are tracking upwards. The downside though is less flexibility when it comes to making extra repayments. And if interest rates drop, you could miss out on potential savings.
With so much to think about when it comes to mortgage refinancing and fixing your mortgage interest rate, it’s worthwhile taking the opportunity to clarify your financial situation and ensure your mortgage is set up in the best possible way. Start by asking yourself these 5 questions.
1. Which way are interest rates moving?
How interest rates are tracking will likely have a direct impact on your decision around whether or not to fix your mortgage interest rate. If interest rates are rising, locking in interest rates for a fixed period of time can help mitigate the risk of higher repayments. But it also stops you from benefiting if interest rates drop.
You may want to lock in your interest rate now with a 3, 4 or 5-year term, so you have more financial security in the years ahead. Or take a chance with a shorter 1-year fixed term to take advantage of potential interest rate decreases in the future. Check out our Interest Rates page for the latest home loan interest rates from different lenders across New Zealand. Then get in touch to talk to our team about mortgage refinancing and structuring your mortgage.
2. Certainty or flexibility: which is more important?
How risk averse are you to any upward movements in interest rates? And how financially secure are you in your ability to continue making repayments at a higher interest rate? If certainty and security are important to you, or the market believes interest rates may increase, fixing your home loan interest rate could be the answer.
Unlike floating interest rates which fluctuate, fixed interests won’t change over the term of the fixed rate you choose. That means your mortgage repayments are not affected by rate increases, and you know exactly how much each repayment will cost during the fixed term. Fixed rates are usually lower than the floating interest rate, so you could save on interest charges too.
Many homeowners split the amount they borrow between fixed and floating interest rates. The key is finding the right balance, and working with a Mortgage Adviser – like those at Max Mortgages – can help you determine the level that’s right for you.
3. Am I planning to sell in the next three to six months?
Selling your home and buying a new home is an exciting prospect, but it could mean break fees charged by your lender if you end your fixed term before its maturity date. Choosing a shorter loan term may be a solution in the meantime, so you’re benefiting from lower fixed interest rates while you prepare to sell your home. But if your house is likely to go to market in the next three to six months – and sell quickly – choosing a floating interest rate means you avoid paying costly break fees that you could be charged for breaking your fixed term early.
4. What is my income likely to be over the next year?
Making extra repayments into your mortgage is an excellent way to save on interest charges over the life of your loan and reduce your loan term. But that flexibility is not always possible when you’re locked into a fixed term interest rate. Or your lender may charge a fee for any extra repayments you make to a fixed term loan.
So, if you are anticipating an increase in income or receiving lump sum payments from time to time, then structuring your mortgage with more flexibility to make extra mortgage repayments is important. With a floating interest rate loan, you can make lump sum repayments of any size at any time without penalty.
5. How long should I fix for?
Along with deciding whether or not to fix a home loan interest rate, choosing the fixed loan term is another important decision for homeowners. Making the right decision can mean the difference in saving or spending thousands of dollars over the life of a home loan. Typically, the longer the loan term, the higher the interest rate, as guaranteeing an interest rate over a longer term is generally seen by lenders as riskier. Short term rates tend to be lower as lenders have a clearer view of how the financial landscape looks for the next year or two.
Get expert guidance
At Max Mortgages, we specialise in helping Kiwis into their own homes and help them make well-informed choices about home loans NZ, mortgage refinancing, and interest rates. Whether you’re a first home buyer or a seasoned homeowner, looking for advice around mortgage refinancing or restructuring a home loan, the team of Mortgage Advisers at Max Mortgages is committed to helping you make good decisions that positively impact your financial future.Contact a Mortgage Adviser
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