It’s a never-ending question: “Is now a good time to fix rates?”
However, my constant reply is always: “Well, it depends!”
That’s because there are a number of variables that you must consider before deciding whether now is the right time for you to fix home loan interest rates.
If your family circumstances are changing – such as a new baby on the way – fixing home loan interest rates could be a good strategy as it will provide certainty around your loan repayments.
Likewise, if your income is declining then fixing rates will protect you against any potential rate rises.
However, if you’re trying to outsmart the banks or you’re trying to bet against them on where rates are headed, remember that they have a team of economists and analysts behind them.
And that means you’re never going to beat them at their own game.
Another reason you might fix rates is if you have a larger home loan and are concerned about future interest rate rises.
However, a better strategy might be to split the home loan where you might have a portion that is on a fixed rate for three to five years, which will give you some protection.
Then you might keep the other portion at a variable rate so you still enjoy the benefits of potentially lower rates as well as facilities such as extra repayments and offset accounts.
Variable wins the day
When considering whether to fix rates, it’s important to understand that historically those borrowers who fix their rates have generally come off second-best to the banks.
Meaning that their fixed rates were higher than they would’ve paid if they had stuck to a variable rate.
The reality is that rates aren’t going to stay this low forever, but that doesn’t mean they’re heading towards nine per cent anytime soon either.
For some borrowers, it’s more about the security of cash flow than paying the lowest rate possible.
When it comes to borrowers with property portfolios, it might be wise to consider fixing rates, especially those with a larger number of assets.
Those investors may want to consider splitting a few loans into two-, three- and five-year fixed rates but still keep some loans on variable.
At the end of the day, there is no perfect time to fix because it’s always about your own individual circumstances.
If our clients are wondering about fixing rates, we review their finances to understand the “whys” first.
If the reasons why make sense, then at the moment we recommend more people fix rates to secure their cash flow over the medium-term.
When it comes to interest rates, no one has a crystal ball. In the end you should always do your best to make an educated decision on what is best for your personal situation now, and in the years ahead.
The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.