How to add flexibility to your fixed rate home loan

INTEREST rates have continued to tumble and while many borrowers are sticking with variable rate loans flexible fixed-rate deals are slowly trickling onto the market.

INTEREST rates have continued to tumble and while many borrowers are sticking with variable rate loans, flexible fixed-rate deals are continuing to flood the market.

Traditionally fixed rate offers don’t come with the benefits that variable deals have including offset accounts and the ability to pay chunks off your loan without getting penalised.

Analysis by financial comparison website RateCity shows there are nearly 2000 two and three-year fixed rate loans available on the market.

Of these about one in five have a 100 per cent offset account — a day-to-day transaction account attached to it.

This means for a customer with a $300,000 debt and $10,000 in the offset component, interest is only charged on $290,000.

RateCity spokesman Peter Arnold says many customers still remain unaware of the flexibility available with many fixed-rate loans.

“There’s a lot of deals where you have an offset and you can repay an unlimited amount but the lender will have a break cost or admin fee so there will be a cost involved,’’ he says.

“We found deals where you can pay an extra $30,000 or five per cent of the loan amount so that’s quite a decent chunk of your loan.

Peter Arnold says offset accounts and unlimted repayments are possible with a lot of fixed rate home loans.

“Make sure you check with your lender what you would trigger with the break costs.”

Smaller lender Heritage Bank offers 1, 2, 3 and 5 year fixed rate loans and their general manager of retail banking Paul Francis says there’s plenty of choice available for customers seeking flexibility when paying off their debt.

“The fixed-rate loans are fully flexible so in other words customers can pay weekly, fortnightly or monthly,’’ he says.

“The customer can pay any amount without restrictions or penalties.”

You can pay as much off ther loan as you like as long as you don’t pay it out in full before the fixed rate period ends otherwise penalties do apply.

RateCity found on a $300,000 30-year fixed loan the average two-year fixed rate is 4.46 per cent and the monthly repayments are $1513, while the rate is slightly higher on a three-year fixed rate deal at 4.48 per cent and monthly repayments are $1517.

While Francis says the popularity of fixed-rate loans remains subdued it’s important customers have options if they do decide to lock in their rate.

“What we are trying to do is give them flexibility, we want to give people the opportunity to pay whatever payments they want so they can reduce their loan and start building their wealth that way,’’ he says.

Of all the two and three-year fixed rate loans that allow extra repayments about one in two have no cap on how much more customers can top up their loan.

Originally published as How to add flexibility to your fixed rate home loan