Wednesday, 20 February 2008

Interest rate fixed

Today was day where a load just came off my shoulders. We made a decision to fix our home loan interest rates for four years.

The way we see it, over that four years, we know exactly what our repayments are going to be and we will also be protected against the any interest rate increases. However, we will also miss out on any interest rate decreases as well, but with the current economic situation, I don't think that interest will be returning to the 5% mark in the short term.

The current interest rate of our current home loan is 8.42% and the fix interest rate what we should be on is 8.54%. This small increase of 0.12% is certain to be smaller than any interest rate increase that the RBA is going to impose.

We also decided to stay with the same bank as changing banks will incurred too much renegotiation fees. By breaking our current mortgage and going to another bank, we are essentially borrowing on another home loan to pay off our current home loan. Some of the major renegotiation fees components are:
  1. Mortgage insurance as we will be borrowing more than 80% of the value of the property. - a couple of thousand dollars
  2. Establishing fee with the new bank - usually about $700
  3. Legals - $200
  4. Contract breaking penalty with the old bank - about $700
We estimate that it would cost at least $3000 in fees.

By staying with the same bank and switching our home loan from its current terms and conditions to a fix interest home loan, we only had to pay a renegotiation fee of $200. The only part of the loan that change is interest rate. The term of the loan did not change.

I read today that RBA was actually considering that this month's interest rate should be increasing by 50 basis points instead of the 25 basis points. With news like that, I shall sleep a lot better now that our home loan interest rates are fixed.


1 comment:

Mortgage Insurance Advisor said...

It is very though to mention the mortgage rates individually, as there are a wide number of factors and statistics involved in the same and they vary from day to day. But any mortgage insurance company would be pleased to give a current list of the insurance rates if asked. It is required to know the current mortgage insurance rates while buying a mortgage, as typically it would be the borrower who would have to pay for it. Most borrowers neglect to ask the mortgage rates from their mortgage sellers, or they are simply informed with all wrong information. These are the people who later find themselves stuck in a rut of high monthly payments.