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While they’ve left interest rates alone this month, most commentators expect the Reserve Bank may have more room for further downward movements in rates over the next six months. This is good news if you’re thinking about buying property now, but what happens if you’ve already bought, and you fixed interest rates on your loan 12 months ago? Are you missing out on these record low interest rates?
It’s always a difficult decision whether to fix your interest rate, or go with a variable loan. When interest rates rise, obviously you’ll congratulate yourself if you’ve locked in a lower rate, but unfortunately, if you’re in the alternative scenario, it’s not so much fun.
Do you take the plunge and break a fixed rate loan, in order to enter a new variable loan at a lower interest rate?
The answer (as always with property) is: do your numbers.
Few banks make it easy for you to break a loan. There will be costs involved, and what you need to weigh up, is whether a lower interest rate with a new provider will make you better off, after all the maths is done.
You need to know if you will make back the difference in fees payable on breaking the loan, by gains you make with the lower interest rate, over the term of the loan.
Banks wouldn’t be banks if they didn’t know their numbers! Make sure you know your numbers too! Sometimes you may be better off riding it out with your existing fixed interest loan for its full term, then switching to a new variable loan at the end of that time.