Floating

Often referred to as the variable rate. It moves up and down with the market. For example, if the OCR goes up, the floating rate goes up, as has just happened when the Reserve Bank increased the Official Cash Rate, the Bank’s responded by lifting their rates.

Fixed

Lock in for a term of 6 months to 5 years. It will be lower than the floating rate. This provides certainty of rate repayments.

Option: You could split your loan onto multiple terms. Early repayment may be subject to a break cost which market conditions will determine.

Revolving Credit

Easiest way to explain is a large overdraft on your cheque account at mortgage rates. The rate is floating.

This appeals to people with disposable income wanting to pay off their loan off faster.

What type of interest rates are out there?

How does a break cost work?

General rule of thumb: if the market rates are higher than what you have currently, the admin fee will compensate the Bank. The opposite will prevail if market rates are lower.

Live Scenario

1: I’m on a lower rate that comes up in a few months. What should I do?

This really depends on your situation. If you are stressing out about interest rates & how much higher they may go, talk to us now at Prop’D Up.

We may break your current rate now & re-fix on new rates. Yes, the rate & repayments will be higher, however you have removed the uncertainty of what they could be, how much higher they may go.

2: My new repayments are tough, what are my options?

Many households are facing increased home loan repayments due to higher interest rates.

 Speak to Prop’D Up now as there are options we can explore such as:

  • extending your loan term to reduce repayments

  • moving your loan onto an interest only period. During this time you are only paying interest and your balance is not reducing.

  • looking at your loan interest rates and ensuring you are set up for the next few years.

  • consolidation of short-term debts

3: What should I do with my loan coming up for renewal?

 Again, this depends on your personal situation.

You can develop strategies so you don't have your eggs all in one basket.

 

4: You split your loan into three portions and fix for 1, 2, 3 years. In 1 year you can reassess, 2 & 3 years provide certainty.

Overall, this scenario means everything is not coming off at once.

Working example: $1,000,000 going from 2.25% to 5% in 1 year.

If you split into three:

  • $333,000 on 1 year

  • $333,000 on 2 years

  • $333,000 on 3 years

So only $333,000 is moving to the higher rate.

Disclaimer: This is not personalised mortgage advice. Should you require advice, please contact Prop’D Up and we will have a Mortgage Broker contact you.