Look Before You Fix
The Age
Wednesday April 24, 2002
A home loan interest rate rise of about a quarter of a per cent is expected next month and many borrowers are wondering whether to fix or opt for a variable loan.
However, the senior adviser at the Home Loan Advisory Service Timothy Stirling urges borrowers to be cautious. "They (fixed and variable) are totally different loans," he says.
"There is a misconception that a fixed-rate home loan is the same as a variable loan, bar the interest rates."
But Mr Stirling advises borrowers to look before they fix, as there is more to this decision than interest rates alone.
"Ninety per cent of all fixed-rate loans won't let the client make extra repayments without a penalty," he says.
This can extend the life of the loan and, in the long term, it can negate any benefit of a variable loan.
The finance policy officer at the Australian Consumer Association Catherine Wolthuizen supports the cautious approach.
She says borrowers should also consider the costs associated with refinancing a home loan.
"There are some issues of extra costs from the switching process," she warns.
These can include discharge fees and establishment fees.
However, Ms Wolthuizen cautions borrowers: "If consumers are looking to refinance their loan, their decision shouldn't be based just on interest rates.
"Look at what you are getting now for the fees you are paying.
And then calculate your possible savings."
© 2002 The Age
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