Conundrum – To Fix or Not To Fix

Conundrum – To Fix or Not to Fix – That is the question.

Depending on who you believe, now may be a good time to fix the rate on your home or investment loan.

Are Rates on the Rise?
According to Yahoo Finance, new data released by financial comparison firm Canstar has revealed 14 lenders have increased fixed-rate loan offers across dozens of products by an average 0.18 percent.
On a typical $300,000 30-year home loan, the average three-year fixed rate is 4.08 percent pa with monthly repayments are $1,446. Compare this to the average variable rate of 4.45 percent pa and monthly repayments are $1511.
Lenders to introduce small hikes include Westpac, ING Direct, Suncorp, ME, Bank of Queensland, Bank of Sydney and RAMS.
Canstar’s group executive of financial services Steve Mickenbecker said he expected more movement in the short term.
The rises to fixed rates have been blamed on the policies of the President-elect Donald Trump which could lead to bigger deficits and result in the US cash rate going up, experts say.

Market Prediction slammed as “fundamentally wrong”.

After pollsters and media commentators were proved wrong in Brexit and the US election, the consensus on the direction of Australian interest rates has been labelled “absolutely false”.
ABC Bullion chief economist Jordan Eliseo says predictions that the RBA will not make any more cuts to interest rates are incorrect.
“One of the things I think the market has got fundamentally wrong and what a lot of commentators have said is that the Reserve Bank is done and that there won’t be any more interest rate cuts. I think that’s absolutely false,” Mr Eliseo said.
“I think there will at least be a couple more next year, so that again is going to put more pressure on retirees and SMSF trustees.”

Borrowers “extremely concerned” about rate hikes.
(Courtesy: The Adviser)

Following calls from the OECD for the RBA to start increasing interest rates as early as next year, new research from credit bureau Experian found that a quarter of Australian Mortgage holders are “extremely concerned” about the impact of a potential 1.5% rise in interest rates would have on their ability make their repayments.

So, what does it all mean?

As you can see, even the experts can’t agree on whether rates are going to drop further or start to increase in the short term. They are certainly at historic lows. One thing is for sure, they will go up, but when is the question.

If you stay with a variable rate you have much more flexibility. You may choose to have an offset account to save you interest, you can make additional loan repayments and redraw these funds should you them.
A fixed rate is not as flexible. You will be limited as to how much extra you can repay during the fixed rate period and you may or may not be able to redraw these funds. The main benefit is you know what your repayment will be during the fixed rate period. This will not change should rates move up or down. Knowing this, from a budgeting perspective, can help borrowers better manage their finances.

You might even consider splitting your loan, part fixed part variable. You retain the flexibility of a variable rate loan whilst protecting portion of you borrowings from rate rises should rates rise.

To Fix or not to fix?

Why not give us a call. We’d be only to happy to explore your options with you.