Should you fix your home mortgage? The real risk if you do.
18 May 2012
Mortgage interest rates are now at 16 year lows. I remember back three years ago when the general advice was this was the time to fix mortgages. In hindsight of course this was terrible advice. Interest rates have continued to fall during the past few years and have remained at consistently low levels.
Once again the general advice being given is now is a great time to fix your mortgage. It’s almost like a type of speculation, trying picking the right moment when to lock your financial situation up for a number of years.
Unfortunately while most people are focusing intensely on getting the best interest rate possible they don’t even consider the biggest risk with fixed mortgages. This risk isn’t whether you will lock yourself into a rate and then interest rates fall further. No, the real danger is the mortgage holder’s situation changes and they need to break their mortgage, incurring break fees. These break fees can be very expensive, sometimes amounting to many thousands of dollars.
It’s seem a little bit frightening that someone would fix a mortgage for three, four or even five years. There are so many uncertainties in life. What if they find they don’t like their new house, neighbours or street? What if they have an unexpected job transfer to another city or country or a redundancy? What about a relationship breakup? There is one thing certain about life and that is uncertainty. Yet very few people contemplate the real risks they are taking when they fix a mortgage for a long period of time.
Once again the general advice being given is now is a great time to fix your mortgage. It’s almost like a type of speculation, trying picking the right moment when to lock your financial situation up for a number of years.
Unfortunately while most people are focusing intensely on getting the best interest rate possible they don’t even consider the biggest risk with fixed mortgages. This risk isn’t whether you will lock yourself into a rate and then interest rates fall further. No, the real danger is the mortgage holder’s situation changes and they need to break their mortgage, incurring break fees. These break fees can be very expensive, sometimes amounting to many thousands of dollars.
It’s seem a little bit frightening that someone would fix a mortgage for three, four or even five years. There are so many uncertainties in life. What if they find they don’t like their new house, neighbours or street? What if they have an unexpected job transfer to another city or country or a redundancy? What about a relationship breakup? There is one thing certain about life and that is uncertainty. Yet very few people contemplate the real risks they are taking when they fix a mortgage for a long period of time.