We visited our bank today to discuss about fixing our home loan interests, and the discussion brought up some interesting points. These items will have to be taken into consideration when deciding if it is worthwhile to switch our home loan. Some of these points are
- If we fix all our home loan, we are able to pay extra into our home loan but only up to $5000 per year without being penalised.
- If we are to just switch our current home loan from its current package to a standard home loan package, the cost is only $200. However, if we have opted for a split loan where a portion of it is fixed and the other is variable, it will be considered as a new loan and all paperwork will have to be re-submitted. This also means that a new set of fees will be applicable as well, including that bug bear mortgage insurance!
- The point which mortgage insurance is needed is based upon the value of your property and the amount of loan. This is important as the value of your property may have change. This may not be applicable for us as our property value has increased since we moved in.
- The current fix interest rate is 8.54% and 8.44% (depending upon the term of the loan), which is only 0.02% more than our current home loan interest rate. So if we lock it in now, we will probably not notice any affects on our repayments.
- The actual interest rate on your fixed interest rate home loan is the rate at the time of execution of the loan by the bank. What this means is that if the fixed interest rate changes from when you signed the papers to when bank accept and counter signed your signature, the new interest rate will be applicable to your home loan.
- Our bank has effectively discontinue our home loan offset account as we need a minimum balance of $5000 for it to be offset against. In some ways, this is like having $5000 earning 8% interest but we don't have $5000 sitting around, so this is not a good option for us. This also caused us to investigate fixing the home loan.
- The banks may not change its fixed interest rates as the RBA changes its interest rates. The fixed interest rates are does not enjoy a high profile a such as their variable counterparts, so we don't hear much about it in the media when it changes.
In a prequel article to this, Sarah pointed to an article on www.domain.com.au that talks about how the banks plays with the fixed interest rate. Many thanks to Sarah
photo credit: Jan Stastny
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