What do I need to know about fixing part of my home loan?

We have a lot of clients looking at fixed rates right now given the low rates in the market.

I recorded a little video here to help with some thoughts about whether we fix part (not all of your loan):

Here’s what I would encourage you to do first up:

1. Read the following articles:

The difference between fixed / variable loans:   https://www.uploans.com.au/blog/2017/09/01/fixedvariable/   (note no redraw on fixed, no offset and maximum extra repayments into the loan of $10,000 per year typically)

Split loans (having some of your loan fixed, some variable)   https://www.uploans.com.au/blog/2018/01/20/why-would-you-want-to-consider-a-split-loan-some-variable-and-some-fixed/

Basic vs Fancier home loans (note the best fixed rates especially with the major banks will typically have a $395 annual fee making them a fancier home loan)   https://www.uploans.com.au/blog/2019/05/28/basic-or-package-home-loan/

2. It’s important to note and acknowledge:

– that fixed rates do not offer as much flexibility as variable loans

– that most banks have restrictions on the amount extra you can pay into fixed loans (typically $10,000 a year)

– that funds cannot typically be redrawn from fixed loans once put in there until after the fixed period

– that most fixed loans come with a $395 annual fee and once on that annual fee if you were on a basic structure with no annual fee before hand switching back to that is usually not possible (note if you’re already paying a $395 annual fee, this won’t change)

– that if you do need to sell your property, close or restructure loans or refinance during the fixed period there can be break costs and it is impossible to ascertain these as they’re calculated daily (note break costs typically apply if the market fixed rates are lower than the current rate you’re fixed on)

3. Have a think about what percentage of your home loan you might like to fix vs keep variable (Often we recommend you keep some variable so you can offset against it / redraw) and let your broker know so they can get interest rate pricing for you. Also think about what period of time you’d like to fix your loan for remembering there can be break costs if you need to exit the fixed period during this time.

I cannot tell you how much to keep variable but here’s a good way to calculate it: If you fix for 2 years, you want to think about how much extra you could possibly want to pay off the home loan in that next 2 years plus all your current redraw and then leave MORE than that variable (and the same for 3 years, 4 years etc).

So for example if a client had $10,000 in redraw and though they could pay off another $10,000 per year and they wanted to fix for 2 years that’d be $10k + $10k + $10k = $30,000 but I’d still recommend you left more variable to give yourself room to stretch so perhaps $40k or $50k (or higher if you felt that was suitable remembering fixed loans have limits as to how much you can pay into them and then it’s stuck there!)

4. Let your broker know any questions.