Flexible Fixed Rate Loan Explained
The thing is that most fixed rate loans offer little flexibility. You will have to face break fees for making extra home loan repayments and you are denied options like redraw and offset accounts. In other words, these loans are more rigid than what the average consumer is looking for. But that is just the average fixed rate loan. Flexible loans offer a little more flexibility. Of course, they are only available to you if you choose the right bank or lending agency to do business with.
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Early Repayments and What They Mean for a Fixed Rate Loan
Most lenders have policies that deny you the ability to repay more than $10,000 off of your loan in one year’s time. This makes it very difficult for some people to repay their loans early. Most banks are funded in such a way that they are not able to offer you extra leeway with fixed rate loans.
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But there are some lenders that are not funded in this manner and they have options. They extend those options to you by offering a flexible fixed rate loan. The flexible loan allows you to avoid break fees that are charged by other lenders when you repay too much of your home loan within a calendar year.
Different banks will allow different amounts of additional loan repayments before those painful early repayment fees kick in. Westpac and Rams will allow up to $25,000 during their fixed rate terms while NAB will allow as much as $20,000 during the same term. CBA and St.George allow up to $10,000 p.a. and ANZ allows as much as $5,000 p.a.
Be aware that these amounts are subject to change over time. You should always discuss the exact terms and amounts before you sign on with any one lender for your mortgage.
Line of Credit – Fixed Rate Loans
One thing to consider when exploring your options for mortgage loans whether you’re looking for a flexible fixed rate loan or something else entirely is whether or not a line of credit type loan would serve your needs better. Some lenders will offer a complete line of credit when you have a fixed rate loan. Some banks do not even require that you make repayments on the line of credit so long as you are not behind on your loan. Most lenders will extend fixed lines of credit for one, three, or five years.
Redrawing During the Fixed Rate Period
Most banks do not allow this. This practice is about the way most banks and lending institutions get their funding and the hoops they must jump through in order to continue to receive that funding. You see, when you pay them, they turn around and pay the sources of their funding. This means that the money isn’t available for them to return to you despite the fact that you made an early repayment.
That doesn’t mean that all banks operate this way. There are some who will allow you to redraw during the fixed rate period in your loan without even charging break fees that would otherwise make the process much more painful.
100% Offset Fixed Rate Loans
Wouldn’t it be nice if all mortgages were straight-forward and easy to understand? They really shouldn’t be all that complicated should they? For most lenders, it really is simple. They will only allow a portion of the interest to be offset during the fixed rate timeline of the home loan.
For the most part, this offers little, if any, real help because any ground that is gained is typically offset by the early repayment fees. There are some lenders however that are able to offer mortgages that are 100% offset! This means you get the benefits of fixed rate loans accompanied by a wagon-load of flexibility.
Construction Loans that are Fixed Rate
Many banks just can’t offer this type of loan for construction because restrictions require that the loans are drawn in various stages. This means that the funds are also released to you in stages, which makes the traditional way of doing fixed rate loans an impossibility.
However, with a flexible fixed rate loan the story has a different ending. You can get a competitive rate that is fixed even when you’re in the market for a construction loan rather than purchasing an existing structure. How great is that?
What Sort of Fixed Terms Can You Get?
You will not be able to enjoy the flexibility of these fixed rate loans for terms of ten or fifteen years. But, you can enjoy terms that last one, three or five years for as much as 100% offset as well as on a line of credit loan. When you consider that some lenders will actually waive the break fees your savings can really add up with the shorter term loans if you get the right rate to begin with. The one exception is when you take out a construction loan, which qualifies for fixed rate terms that last as many as 15 years.
Rate Lock – What is it and do You Need It?
Rate lock is important to consider when applying to advance your fixed rate loan. This offers protection for you in case the rate for the loan you’ve applied for is changed before the actual loan is advanced. Some lenders are also kind enough to waive the fees involved in locking the rates on every fixed rate home loan they offer.
Getting the Best Rate for Your Mortgage
Getting the best rate is always important when you’re investing in something as costly as a home. The longer the term of the loan and the higher the rate of the loan the more money you’ll pay over the life of your loan. Early repayments could save you money in theory but only if there are no fees in your plan for early repayments.
The way to get the best rate is to compare prices and shop around online. You have the option to visit banks and mortgage lenders in your community. But, who has the time to compare prices that way? If you’re really interested in saving money and getting the best possible fixed rate for your home loan then you’re going to have to do a little comparison shopping online. Just remember that you need all the facts first and foremost.
Don’t fall for the first bank to offer a flexible fixed rate loan. See what options are available and which one offers the best terms for you. Also keep in mind that break fees really can break your budget so see if the flexibility offered extends to those and making them less of a potential problem for you. Finally, make sure that your home loan is as attractive to you as the home you are buying so that you can be happy with both for many years to come.
Related posts:
- Home Loan – 20 to 30 Year Fixed Rate
- 10 year fixed rate home loan
- How to Decide Whether to Break a Fixed Rate Loan
- How to Break a Fixed Home Loan
- Newcastle Permanent Fixed Rate Home Loan
- Australian First Mortgage Flexible Option 1 Yr Fixed
- 30 Year Fixed Rate Home Loan
- CUA Premium Fixed Rate Home Loan
- 15 Year Fixed Rate Home Loan
- IMB Fixed Rate Home Loan
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