Should You Switch to a Fixed Home Loan?
    • 23 November 2022

    Should You Switch to a Fixed Home Loan?

    With the recent cash rate increases imposed by the Reserve Bank of Australia (RBA), you may be asking yourself if now is the time to switch to a fixed home loan? There are many benefits to sticking with your current variable home loan, but with interest rates skyrocketing over the past few months, the appeal of a fixed home loan may be growing more and more.

    Property Club is committed to helping its members make wise decisions about their future as property investors, so we’re sharing some of the reasons why making the switch to a fixed home loan may be worth it in the long term.

    The Downside of Variable Home Loans

    Many property investors rightfully favour variable home loans for their flexible interest rates, which historically have made it easier for people to pay off faster than fixed home loans. When the RBA reduces the cash rate, investors benefit from having their repayments reduced as well.

    Of course, the downside to this is that mortgage payments are also subject to going up when the RBA increases the cash rate. Which is what the RBA has been doing recently, continuously increasing the cash rate by up to 50 basis points per month. As of November 2022, the cash rate sits at 2.85% and is expected to continue climbing.

    Any property investor on a variable home loan will be feeling the pain of these sudden increases, as the interest rates on their mortgage repayments will also be going up and up.

    Why Consider Switching to a Fixed Home Loan

    There are many pros and cons of a fixed home loan, but in the current economic environment, it may be wise to switch over to one before the interest rates become too high to handle. Here are some of the benefits of a fixed home loan:

    • You will have certainty in knowing exactly how much to pay, making it easier to budget for the future.
    • You won’t have to worry about your payments increasing alongside the current cash rate hike.
    • It is a less risky, more stable way to pay off your home loan.
    • It may be a better option if you are stretched on cash flow.
    • It is a better choice if you do not have much equity or a cash buffer if things get tough.

    A fixed home loan provides a sense of certainty that many property investors are currently lacking in these uncertain times.

    Should You Switch?

    At the end of day, whether you switch to a fixed home loan or decide to stay with your variable one is your decision to make. It is a decision that should be influenced by your current financial situation and how much you think it will be impacted by the current and future cash rate increases.

    Fixing is not going to be for everybody, but if you want to take a more risk-averse approach to property investing during these unprecedented times, then it is certainly worth considering.

    Property Club is Here to Help

    If you have any questions along your property investment journey, get in touch with the experts at Property Club today. We can help you find the right information for you to make an informed decision along every step of the way. Contact us today at enquiries@propertyclub.com.au.

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