If you’re trying to get the maximum amount of home loan interest savings and are wanting some certainty around your mortgage repayments, you may be wanting to fix it.
But how long should you fix it for? In this article, we’re going to give you four pro tips to help you figure out how long to fix your mortgage for so that you can get the maximum amount of savings on your mortgage repayments as possible, so that you can outsmart the bank when it comes to refixing your mortgage. Pro tip number four is going to save you hundreds of thousands of dollars, so pay close attention to this one!
Watch Instead: How Long Should I Fix My Mortgage For?
- Think about where interest rates are going.
The first tip we have is to have a think about where interest rates are going at this present point in time. If you think interest rates are going up, then you want to fix your mortgage for as long as possible, so that you can lock in a lower interest rate now, as opposed to where rates are going to be in a few months or a few years. On the contrary, if you think interest rates are going down, then you want to fix your mortgage for the shortest amount of time possible, so that you can lock in a lower interest rate in 6 months or a year etc. when you mortgage rate rolls off its fixed term and you have to refix again. So base the length of time of your fixed rate on when you think the interest rates will change ; for worse or for better. Currently, we’re in a higher interest rate environment; it is projected that in the next year interest rates will stabilize, and in the next 18 months we’ll see interest rates start to fall.
Caveat – these are all just predictions.
You must make your best guess as to where you think the market is heading and you want to try and time how long you’ll fix your mortgage for in accordance with where the market is heading.
- Are you thinking about selling?
You don’t want to be caught with a fixed mortgage when you’re trying to sell because when you sell, you’ll have to pay break fees on your current mortgage as you’re breaking that fixed interest period. If you’re going to sell, say in six months or a year, then only fix your mortgage for that time so that you can avoid break fees. Then when you want to sell, your mortgage is on floating rates and you don’t have to pay any fees.
- How much certainty do you want?
If you’re wanting certainty around your mortgage repayments, you’re going to be trying to fix your mortgage for the amount of time that you’re wanting certainty for. This comes into play when you’re thinking about life events. Perhaps you’re having a baby, and you want a more predictable spending plan to know how much you’re going to have to pay towards your mortgage for the next few years, so you want to fix your mortgage for a certain time so that you don’t have any fluctuation in your mortgage repayments. Now you may have a low interest rate over this period of time or you may not; that’s where you’ll have to weigh out the certainty that you’ll get and also trying to time it where you can lower your interest rates naturally with the end of your current fixed term. You can combine some of these considerations to come up with the best length of time to fix your mortgage for based on your goals and what you think is happening with your finances.
- Are you following your own plan or the bank’s plan?
Are you currently thinking “the bank has given me 30 years to pay off this mortgage, I’m just going to pay it off within this timeframe and try to fix and get the lowest rate possible, where possible.” Or are you following an actual strategy to minimize the interest that you’re paying on your mortgage to the bank?
If you’re following a plan, then that plan will include how long to fix your mortgage for, what structure you should have on your home loan and how much interest that you should be saving based on having an actual plan ($280,850 on average that’s staying in your pocket as opposed to going to the bank), versus a 30-year mortgage plan, where you’re winging it and trying to chase the lowest interest rates, not really knowing where you’re going or having a plan to build wealth.
In summary, the best way to attack how long you should fix your mortgage for and to outsmart the bank is to have a plan! And that’s exactly what we do here at Futurebound. We give you a plan so you can maximize the interest that you’re saving, pay off your mortgage for the shortest amount of time possible, and be able to use that position, i.e. the equity that you build, to make more money by investing in assets that work well for you.
If you’re saying, yes, I need a plan; I want to fix my mortgage in a way that works best for me and I’d like to use a strategic plan to further my financial goals, then book a 15-minute chat with us so we can give you that plan. We can assess your situation, look at your financial goals, look at your priorities, and give you a plan that matches those instead of the bank’s priorities.