FIXING OR FLOATING YOUR MORTGAGE INTEREST ONLY
When property investors make this critical financial decision, they normally make one of three choices:
take a floating rate and potentially face higher (or lower) interest costs
take a fixed rate, which may or may not prove better than floating rates during the fixed term
split the mortgage into two loans, with one loan on a floating rate and the other on a fixed rate for a specific term
One of the normal consequences of a fixed rate motgage is that if you break it or if you pay it off earlier you are liable for early repayment penalties.
Even profound economists are unable to consistently predict every event that may significantly influence interest rates. So how do we continually get the lowest possuible interest rate on our mortgage. The short answer to that is- we can't.
If we do choose to simply take a long-term low fixed rate, we are exposed to the risk that when our fixed rate expires, we may face a large rate increase, which we may not be able to afford.
Many people opt for a floating rate (when floating rates are low) and sometimes will incur early repayment penalties to break fixed rates so they can enjoy a lower floating rate. Their intention is usually to watch interest rate levels and take a fixed rate if rates start to increase. This reflects a somewhat short-term to a long-term mortgage commitment. If interest rates start to increase, for example, and you take a fixed rate, you may find a few months later that those rates are back down- or worst still, considerably lower than when you decided to take a fixed rate.
Other people split their mortagage between fixed and floating in an effort to minimise a total exposure to the risk of floating and fixed rates both rising.
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