The best fixed home loans over 3 years
Buying a home isn’t all about choosing the right property – there’s also the issue of how your loan is structured, which will likely dictate how you pay off for years to come. As a buyer, one potential option would be to fix your new mortgage rate for three years, and if you think about that, we’ll look at the pros and cons, as well as other key questions about low-interest mortgage loans. fixed.
When buying a new property and taking out a mortgage, there are usually three categories to choose from:
- Fixed Rate Home Loans: This option means that you will lock in or “fix” your home loan for a set period of time, during which your interest payments will not change.
- Variable Rate Home Loans: This option means that the rate on your home loan will be variable and your interest payments could go up or down.
- Split mortgage loans: this option consists of combining a fixed rate with a variable rate and splitting the percentages in a way that suits your needs.
If you want to secure a stable interest rate for the first few years of your mortgage, one option might be to choose a three-year fixed rate home loan.
What is a 3-year fixed mortgage?
A three-year fixed rate home loan is a loan in which the interest rate you will pay is locked in or “fixed” for a period of three years, usually from the start of the loan. This means that throughout that three year period, your required repayments will remain constant, rather than potentially fluctuating up or down as they might with a variable rate.
What are the potential benefits of a 3-year fixed mortgage?
There can be a number of possible benefits of locking in an interest rate, whether you choose to do so for three years or for another period. These include:
- A sense of security in your repayments: With a fixed rate over three years, your repayments will remain the same from one month to the next during the entire period, so you will not have any surprises in the event of an increase in the rates. interest and you will be able to budget for your other needs and expenses knowing exactly how much your mortgage will cost. In addition to the interest rate, it may be a good idea to take the comparison rate into account when determining what you can afford to repay.
- The potential to save money on fees and charges: Variable rate loans come with additional features such as clearing accounts and withdrawal facilities, and while these features are useful, they can make a loan more expensive. If you don’t like bells and whistles or think you can do without them, repairing your loan could pay you less fees and charges.
What are the potential drawbacks of a fixed 3-year mortgage?
If you want the security of locking in a favorable interest rate for three years, you may need to make a number of potential tradeoffs. These include:
- A lack of features: If you want to use your home loan account as your checking bank account or keep a withdrawal balance to help lower your interest rate, you usually won’t be able to do that with a fixed rate loan, because these features are generally only available with variable rate home loans. If you want to avail such features on a fixed rate loan, you may need to pay additional fees to access them, depending on your lender.
- The ability to miss out on a lower interest rate: When you lock in your rate, your repayments won’t change if interest rates rise, but neither will you benefit if interest rates rise. fall.
- Inability to make additional repayments: A common feature of variable rate home loans is the ability to make additional repayments beyond what you owe each month, in order to lower the loan balance. Fixed rate loans usually don’t allow this, which means there’s usually not much you can do to reduce your loan balance faster. However, this can vary depending on your lender and your mortgage product.
Can we break a fixed mortgage over 3 years?
Depending on the terms and conditions of a fixed home loan, it may be possible to break it before the end of the loan term. Whether you want to refinance your loan for a better rate, sell your home, or circumstances have changed, you may be able to get out of a fixed rate loan, but it could get expensive.
If your contract allows you to exit your loan early, it is likely that you will be charged a “break fee” or “break fee”. Lenders charge this amount as a form of compensation for lost profits that they may face due to loan breakage by borrowers. While there is no set amount for breakage fees, they usually take into account the fixed interest rate (compared to current interest rates), the remaining term of the loan, and the amount of the loan. himself. How Long Can You Secure a Home Loan?
There is great flexibility in how long you can secure a home loan – lenders will usually allow you to do so for a shorter period of one, two or three years, or a longer period of up to five or even 10 years. How long you choose to lock in your interest rate will ultimately be a matter of discussion between you and your lender, given what they’re willing to offer and how long you want to lock in your rate. .
When is your interest rate locked in?
If you plan to lock in the interest rate on your home loan for three years, it’s important to keep in mind that the interest rate will be set on the day you settle in and not on the date you apply. Interest rates could fluctuate during this period, so you could theoretically find yourself locked in at a different rate than you expected for the three-year term.
There are ways around this, however. If you want to be sure that you are setting the exact rate you want, some lenders will offer you the option of locking in a rate before settlement, but you may be required to pay a locking fee to secure it, as well as the availability of this feature. will depend on the individual lender and the home loan product you are applying for.
What happens when your fixed loan term ends?
Generally speaking, at the end of a three-year fixed-term contract (or any fixed-term contract), you will have several options. You could:
- return to a variable rate for the rest of your mortgage
- refinance with your current lender to lock in on a new fixed-rate or even split-rate home loan with a fixed and variable component
- refinance your loan with a new lender, choosing either a fixed or variable rate, or a split rate that combines the two.
Which lenders have the lowest fixed rate home loans?
If you are considering a three year fixed rate home loan, you can compare home loans with Canstar to find a low rate lender that suits your particular needs. You can also take a look at the winners of the Canstar Fixed Rate Home Loan Awards to find out which lenders can offer great value to Australian homebuyers.
Consider the Product Disclosure Statement (PDS) and Target Market Determination (TDG) before making a purchasing decision. Contact the product issuer directly to obtain a copy of the PDS and TDG.
Source of cover image: bbernard / Shutterstock.com.
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