Interest Rates: Fixed Vs Variable.
This question is currently a hot topic. We hear it all the time ....."Should I fix my rate?" "What if rates go down?" "What if rates GO UP!?!" It's a little like gambling, and the answer lay in your ability to be able to afford any unexpected interest rate increases.
Fixed rates do provide rate security for a determined period and certainty of repayments. For families that are on a tight monthly budget, and are conscious of or anxious about unforeseen increases, fixed rates are a good option.
The question is always "will fixed rates be further reduced in the near future?" or "will variable rates stay low and continue to fall?" Both of these questions are difficult to answer, with even the most respected economists struggling to agree on interest rate predictions.
My opinion on Fixed Rates is that if you personally feel you would struggle with repayments with a 50 bp (0.5%) increase in rates, then you should consider fixing. In saying that, it may not be that you are technically unable to service a 50bp increase, as the original calculations for your loan would have assessed your ability to pay an extra 300bp increase in rates. Just because you CAN service however, does not mean that you would want to. The question would be whether you would feel comfortable paying extra per week.
The other important consideration is your short term and long term plans. If you have a growing family and are planning to upsize, or considering selling in the near to mid term future, fixing your home loan rate may mean you will be liable for break fees when you discharge or make changes to your home loan. If you are close to retirement age and planning on downsizing, then fixing your interest rate would most likely be a bad decision.
It is also important to make an assessment on the difference between variable rates and the various fixed rates, from 1 - 5 years, and whether fixing your rate suits your personal situation.
We will never give advice on whether to fix or not, but I am always happy to discuss your circumstances and give you examples of other families that I have dealt with over the years. The experience of other families in a similar position to yours can often be very helpful.
You can always give me a call or pop by to visit if you have any questions. I am always happy for a coffee and a chat.
