Everybody loves cheap interest rates and there are some very good fixed rates available from time to time.
These look very attractive but it is just as important to look beyond the fixed rate period to see what will happen once you come off the fixed rate. This is called the revert rate but varies incredibly from one lender to the next as can be seen from the following table.
We compare three lenders – two with a Fixed Rate of 4.94% for a 3 year period and one with a Fixed Rate slightly higher at 4.99% but have a look at which one is the lowest over the life of the loan.
Cheap Fixed Rates are great but you need to be aware of what will happen at the end of the Fixed Rate period. The following scenario is based on a loan of $360,000.| Lender | Initial Fixed Rate % | Initial Fixed Rate Period | Revert Rate | Total Charges & Interest over 30 year term | Extra Amount being Paid over lowest cost |
|---|---|---|---|---|---|
| A | 4.94% | 3 Years | 6.14% | $416,648 | $62,626 |
| B | 4.94% | 3 Years | 5.41% | $362,562 | $8,540 |
| C | 4.99% | 3 Years | 5.19% | $354,022 | Not Applicable |
Interesting isn’t it.
The one with the lowest overall cost is actually the one with the highest initial fixed rate but did you notice the difference between the two lenders offering Fixed Rates of 4.94%?
A massive $54,000 over 30 years.
As the ad says …… this information is priceless.
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