Many borrowers can split their home loans and have some a portion variable and a portion fixed.
Many borrowers can split their home loans and have some a portion variable and a portion fixed.

Rates on hold: What you must consider with your mortgage

Mortgage interest rates continue to fall despite the Reserve Bank of Australia keeping the cash rate on hold.

On Tuesday the nation's central bank left the cash rate at 0.25 per cent but borrowers can continue to score themselves rock-bottom deals.

Experts say customers who are unsure whether or not to split their mortgage should consider splitting their loan so they can get the best of both worlds.

Most offers have a "2" in front and deals are continuing to fall making now a critical time for borrowers to ensure they can shave down their debt faster.

 

The Reserve Bank of Australia has kept the cash rate on hold. Picture: AAP
The Reserve Bank of Australia has kept the cash rate on hold. Picture: AAP

 

Choosing a fixed or variable rate can be a tough decision for many - fixing ultimately means the borrower thinks rates will go up so they are locking in their charges.

1300homeloan director John Kolenda says people should look at all their options before opting for any deal.

"Having a portion on a variable loan gives you the option of paying down the debt quicker," he says.

"Shop around to get the best fixed and variable rates, make sure both are competitive and be aware that the greatest flexibility sits within the variable rate."

 

Choosing a fixed or variable rate can be a tough decision for many. Picture: iStock.
Choosing a fixed or variable rate can be a tough decision for many. Picture: iStock.

Many fixed rate loans have a limited amount that can be paid extra off during the fixed term, while for variable rate loans borrowers often have no limits to how much extra they can pay down.

Borrowers could split loans down the middle - so 50 per cent variable and 50 per cent fixed.

This percentage split can be done other ways, for instance 30 per cent variable and 70 per cent fixed.

Kolenda says there are no fees associated with splitting loans, but there are charges if you want to break the fixed component.

"The only thing to be mindful of if you take the fixed component you must stay in the fixed period for the term outlined," he says.

"There could be costs with terminating that fixed period if you do it before the expiry date."

Fixing is usually a bad idea if you want to pay extra off your loan, you plan to sell within the fixed period or you want to change loan products.

Home Loan Experts' chief executive officer Alan Hemmings says when he talks to customers establishing their goals for the next five years is key.

"Most lenders only offer split loans as part of a package, so a customer cannot have a basic variable (normally at a cheaper cost) product with a fixed rate," he says.

"The customer will have to pay annual package fees."

But he says a split loan can make a lot of sense for borrowers who want to benefit from both types of loan "provided they do not have to pay out the fixed portion early".

sophie.elsworth@news.com.au

@sophieelsworth

Originally published as Rates on hold: What you must consider with your mortgage


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