Consider this if you're thinking about fixing your loan
Whilst a fixed rate might seem pretty darn good, there can be a little catch you need to be aware of. We explain why the ‘roll off’ rate can be a big deal.
Whenever interest rates are rising, or there is talk that they may rise, people often consider taking a fixed rate for their loan to guard against paying a higher rate in the near future.
And whilst those fixed rates might look pretty darn sweet, there can be a little catch you need to be aware of; the variable interest rate the loan moves on to when the fixed rate term ends.
We call that variable interest rate the ‘Roll Off’ rate, and unless you actively change yor loan product or lender, it kicks in automatically (although you do get notified in advance of the roll-off date by your bank).
But Is tis actually a big deal? Well, yes it can be.
And here’s why: believe it or not, you don’t necessarily just move straight back to the variable rate that you previously had; or the best variable rate that the bank is offering.
Some lenders will move you to a higher variable rate, sometimes waaaaay higher than their normal (or ‘standard’) variable rate. The roll-off rate can be anything from 0.2% to nearly 2% higher; at 2% this would translate to an extra $917 per month in interest costs on a $550,000 loan.
Lenders do need to let you know what the variable rate will be at the end of the fixed term when you sign up for the fixed rate, but it is very easy to skip over that part when you’re excited about locking in and signing the bank’s paperwork. It’s also easy to miss when the fixed rate ended and just start paying that higher variable rate, because, well, you’re busy with life.
Happily, not all lenders are doing this, as some will let you roll straight onto their best variable rate. But the roll-off rate is definitely something that you should think about when considering a fixed rate.
So before you decide to lock in that rate, make sure you look for the roll-off rate.
If you’d like to know more, book an appointment or contact us