Benefits of Fixed Rate Home Loans
* Borrowers know exactly what their repayments will be for the term of the loan
* Families can plan ahead and formulate budgets.
* The mortgaged property is protected against unexpected rate rises.
Economic conditions can change quickly and unpredictably as history has shown us. In the late 1980′s interest rates rose to 17% in Australia. The Reserve Bank of Australia embarked on a series of rate rises in order to moderate an overheated economy. During this period, many home owners were no longer able to afford their repayments and were forced to sell their homes. Because of the glut of properties that came on the market, property prices dropped significantly. Many properties were sold in mortgagee sales at less than money owing on them.
The bursting of the property bubble in the United States also resulted in a large decline in property prices and a high rate of “foreclosures”. Many borrowers in the US purchased their properties during a period of low rates and were unable to meet their repayments after several rate rises. Borrowers did not foresee the rate increases that occurred.
Hopefully, Australia will not face rates as high as 17% again in the near future, but while rates are much lower at present than the peaks in the 1980’s, it should be noted that levels of debt in Australia are very high by historical standards and many borrowers will experience considerable hardship at rates much lower than 17%.
The most important benefit of fixed home loans is that they protect the property that is being mortgaged. You can only continue to live in a property as long as you continue to make the repayments. It makes good sense to consider fixing at least half of your mortgage.