Australia’s credit Ombudsman, Raj Venga, is worried about the increase in fixed rate mortgage loans in recent months. While the unusually cheap fixed rates may be enticing, Venga warns borrowers to consider the implications of locking in a home loan rate.
It is possible that the interest rates will continue to fall in the coming months, leading many with higher fixed rate mortgages looking to refinance. In the past this has resulted in the borrower being charged high break cost fees by the original lending bank. When rates are falling, if a bank has to re-lend the money at a lower rate, the bank is allowed to seek recompense. The larger the rate fall, the higher the break cost to the borrower, totalling as much as tens of thousands of dollars!
To prevent incurring these high costs in a falling rate market, borrowers are warned to find out how any break costs would be calculated prior to signing on. If already on a fixed-rate loan and contemplating refinancing or selling, Venga recommends requesting an indicative payout figure including any break costs. Keep in mind this figure may change daily.
This advice is important to consider when researching and comparing mortgage options!
What’s your opinion on fixed versus variable rate mortgages?