A mortgage is a loan used to maintain or purchase a home, land, and other real estate types. The borrower (the individual wanting the loan) agrees to pay the lender (the financial institution giving out the loan) over time, typically in regular payments divided into interest and principal. The borrower’s property then serves as collateral to secure the mortgage or loan.
Individuals must apply for a mortgage (loan) through their preferred lender and ensure that they meet several criteria or requirements, including down payments and minimum credit scores. Mortgage applications go through an underwriting process before they get to the closing phase. Mortgage types vary based on the needs of the individual, such as fixed-rate and conventional loans.
This article will discuss a fixed home mortgage, how it works, the benefit of a fixed home mortgage, how to get a fixed mortgage, and many more.
What is a fixed home mortgage?
A fixed-rate mortgage is a type of mortgage loan where the interest rate remains the same through the agreed loan term, as opposed to loans where the interest rate may float or adjust. As a result, the amounts to be paid and the duration of the loan is fixed, and the individual responsible for paying the loan benefits from a consistent, single payment and can plan a budget based on the fixed cost.
A fixed-rate home loan interest rate on repayments stays the same for a fixed period. It is commonly anywhere from 1-5 years, meaning that the borrower (the person that wants the loan) knows exactly how much their annual and monthly repayments will be.
After the expiration of a fixed rate, a borrower’s entire loan move to a variable rate, or they may be able to negotiate another fixed rate term depending on the loan provider.
The Benefits of a Fixed-Rate Home Loan
With the certainty of the cost of repayments, fixed-rate home loans protect borrowers from sudden interest rate increases by the Reserve Bank of Australia. These interest rate increases have been too common as of late as the central bank tries to control inflation.
While those people with fixed rates are not feeling the burden from the recent increases, those with a different type of home loan would feel the burden that comes with it. And this could result in them ending up entering mortgage stress territory.
However, If the Reserve Bank of Australia were to lower these interest rates, those individuals with a fixed-rate home loan would still be required to pay their already agreed fixed rate of monthly repayments until the loan period ends. Those individuals with variable rates would benefit, as their interest rates would change alongside the Reserve Bank of Australia’s cash rate movement.
Fixed Rate Mortgage Fees
Along with the risk that a borrower or mortgagor would still have to pay the higher interest rate of repayments if interest rates were to decline, other costs are associated with a fixed home rate mortgage.
These costs include a loan application fee or establishment fee, which is a one-off upfront cost to establish a bank’s legal fees or a loan and cover valuations; a rate lock fee, which is a fee to lock in the rate from the start of an individual’s application to their first repayment; and exit fees or break fees when choosing to refinance.
How a fixed home mortgage works
A fixed home mortgage charges an interest rate that remains unchanged throughout the loan. Although the amount of interest paid and principal each month varies from payment to payment, the total payment doesn’t change, which makes budgeting easy for homeowners.
They are different kinds of mortgage products available on the market, but it all boils down to these 2 basic categories: fixed-rate loans and variable-rate loans.
A fixed-rate mortgage is a home loan with a fixed interest rate for the whole time the loan is being paid. The fixed mortgage carries a constant interest rate from the beginning of the loan to the end. This type of mortgage is a popular product for people who want to know the monthly amount they will pay
Fixed-rate mortgages carry the same interest rate throughout the loan, and it doesn’t fluctuate with the market; the interest rate stays the same. The variable-rate loan interest rate is set above a certain benchmark and fluctuates and changes at certain periods.
Some mortgagors who purchase a home for the long term end up choosing an interest rate with a fixed-rate mortgage. The mortgagors prefer these mortgage products because they are predictable.
You can learn more from the video below:
What mortgage rate will be in Australia in 2023
Commonwealth Bank Group economists predicted that the Australian economic growth would slow from 3.5 percent (%) in 2022 to 1.1 percent (%) in 2023 and forecast one further 25bp interest rate hike by the RBA (Reserve Bank of Australia) in February 2023 to a peak rate of 3.35 percent (%).
Analysts expected the Reserve Bank of Australia (RBA) to continue increasing its interest rate until it reaches above 3 percent (%) in 2023, before pausing. In 2024, analysts forecast that the Reserve Bank of Australia will begin cutting the cash rate. Remember that analysts’ predictions are not always right; they can be wrong most times. Forecasts shouldn’t be used to prioritize your research.
How to get a 3-year fixed home loan rate in Australia
- People should research and speak to a mortgage broker about the kind of fixed rate and term period best for their financial situation.
- Individuals should compare various banks and lenders that offer loans suited to their needs. Speak to the banks about their options and find out whether they are eligible.
- Once the people have decided on the most suitable mortgage provider, they can begin applying for their fixed-rate home loan.
List of 5 mortgage brokers to get a 3-year fixed home loan rates in Australia
Below is a list of 5 mortgage brokers to get a 3-year fixed home loan rate in Australia
Easy Street Financial Services | Easy Street Fixed – P&I 3 yrs | Fixed for 3 years
Easy street has over $700m in assets and more than 7,000 Members – making it rock solid. It maintains high levels of reserves to ensure its ongoing viability and offers a wide range of financial services, including loans and award-winning savings. Their advanced suite of services is available online, which means it can be flexible and fast at all times.
A 2-3 year fixed term.
People can choose to fix their home loan interest rate with Easy Street for 2-3 years, depending on their plans for the future and where they think interest rates are going in the medium term.
A 100% offset account.
Easy street offers an offset account, a transaction account linked to their loan account, and any funds in their offset account save their interest on their home loan.
When people have extra money, they can deposit it directly into their loan account to reduce their principal amount. It reduces the loan term and the interest they pay.
People will feel more confident depositing extra money into their home loan if they know they can easily reaccess them, which they can with a redraw facility, which doesn’t restrict them with a minimum redraw amount, so they only withdraw as much as they need.
No ongoing fees
There are no ongoing account-keeping fees to pay.
Pacific Mortgage Group /Residential Fixed P&I 3 yrs/Fixed for 3 years
The Pacific Mortgage Group (PMG) Fixed loan is available to owner-occupiers, property investors, and homeowners looking to refinance their mortgage. With a fixed rate, people are assured that their repayments will not be affected by the rate changes for the specified duration of time. It means people can create a budget that won’t be made useless or interrupted by rising rates.
PMG gives people loan terms starting from 5 years and up to 30 years. Fixed-rate terms are available for 2, 3, and 5 years.
The PMG Fixed Home Loan allows people to borrow a maximum of $5,000,000.
Loan-to-Value Ratio (LVR)
people can borrow up to 80 percent (%) LVR with loans of up to $5,000,000
General repayment flexibility.
PMG gives people flexibility when repaying their loans, where they can choose to have weekly, monthly, or fortnightly schedules.
The ING fixed home loan is a full documentation loan available to people refinancing or buying a home or investment property.
Owner-occupiers can borrow up to 80 percent (%) for the ING loan without LMI (lenders mortgage insurance) or up to 95 percent (%) of the property value with lenders’ mortgage insurance. In comparison, investors can borrow up to 80 percent (%).
People can make repayments either monthly or fortnightly, and they can make unlimited additional repayments.
Offset account. People can link a 100% offset account to this loan and have their salary or other income credited directly to this account.
Redraw. If people make additional repayments and later need to access this money, the Orange Advantage Loan includes a redraw facility.
IMB Fixed Home Loan
The IMB Fixed Home Loan has a fixed rate and repayments to prevent people from having to make bigger payments during interest rate fluctuations. This loan is great for people who want competitive features and a sense of security when paying back. The loan is also very flexible and allows people to make repayments of up to twelve (12) months in advance without any penalties.
With the IMB home loan, people can make free redraws through mobile banking and the internet. It means people can redraw additional repayments they have already made if they need the extra cash.
Although it is a fixed loan, people can split it with a competitive variable rate, allowing them more potential savings and flexibility in interest.
Maximum loan amount
The maximum loan amount is up to 95 percent (%) of the property’s value; however, LVRs over 90 percent (%) may attract higher rates and charges
Maximum loan term
The maximum period to repay this loan is 30 years. However, the quicker people pay off their loans, the less interest they will have to pay, so they might want to make additional payments when possible.
TicToc Home Loans
Borrowers can only apply online on the TicToc Home Loans, and it assesses the borrower’s application as they enter their details. The application process can take 15 minutes instead of weeks. This home loan platform has the backing of the Adelaide and Bendigo Bank.
LVR (Loan-to-value ratio). This home loan requires at least a 10 percent (%) deposit, meaning people can borrow up to 90 percent (%) of a property’s value.
Repayment frequency. People (borrowers) can make weekly, fortnightly, or monthly payments and unlimited additional repayments.
Limited fees. The loan has no ongoing settlement or application fees and offers free valuations.
Free redraws. The loan allows for unlimited free redraws.
Offset account. It will provide an offset account for a $10 monthly fee.
Fast application. The entire application process is online. The lender can process the application quickly if the individual has all the necessary details on hand.
Lenders will tell borrowers how much they are qualified to borrow – that is, how much they are willing to lend the borrowers. Several online calculators will compare the borrower’s income and debts and come up with similar answers. But how much they could borrow is very different from how much they can afford to repay without stretching their budget for other important items too thin. Lenders do not consider all their family and financial circumstances. To know how much they can afford to repay, they will need to take a hard look at their family’s savings priorities, income, and expenses to see what fits comfortably within their budget.
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