Fixed interest rate loan

I am thinking about a fixed interest rate loan because I am afraid that there will be more interest rate rises and I'm really sailing close to the wind. What should I know about these loans?

First, with these loans you are locked in for the life of the loan, but you can get out by paying some pretty hefty fees. Make sure you ask the lender what the costs are of breaking the loan.

The next thing you have to work out is how long you want to lock in for. If you opt for five years and home loan interest rates fall to say 6.5% or lower, will this make you feel sick? There are two-year fixed interest rate loans for 7.7% at the moment, but others are higher.

Also find out if your current loan has a penalty for termination. By the way, often your own bank will do a swap from variable to fixed and there can be costs, so make sure you check it out. Be aware that what you are doing is a money market gamble, but it is likely that interest rates will rise one or two more times because we do not look like falling into recession. (Note, this is my guess and should not be taken as advice.)

However, a recession has to come along eventually as we have been growing for more than 16 years and when a big downturn comes interest rates will fall.

Go to the websites that show you interest rates from different lenders and talk to mortgage brokers before you make the move. Sure, if you think you will sleep better at night knowing you can make your payments at current rates of interest then the only time you will regret your move will be when rates fall. Life is a gamble, but you can reduce the chances of losing by doing your homework and reading the fine print.

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