The Reserve Bank of Australia (RBA) is expected to raise rates again next week after the latest inflation numbers showed a solid increase in the September quarter. With more interest rate hikes expected in the near term, the big question now is whether borrowers should take the risk of higher rate repayments or bite the bullet of paying premium on fixed rate loans.
The latest issue of Your Mortgage, on sale now, features an in-depth analysis of the benefits of taking fixed rates in the current rate environment. The magazine also looks at the traps to watch for when opting to fix.
Paul Bonaventura, general manager Austral Mortgages, said fixed rates are not as attractive now as they were a few months ago, but borrowers may not have quite missed the boat.
"Some fixed rate products have climbed three or four times in the last few months and are not attractive as they were. When cash rates move, variable rates will always go up, but fixed rates are determined by the lender. My general thought is that rates may climb again in December. I believe it will then remain stable for some time. If that's the case, it's more of a reason why people should look at fixing their rates, to guard against another impending quarter per cent rise," said Bonaventura.
What are your options?
However, the decision to fix or not depends largely on personal preference.
"My personal opinion is that if you can afford to stay on the variable rate, then stay, as it offers a much larger range of options," said Luke Sheales, national sales and distribution manager with Mortgage House. "Fixed rates are generally much higher than the cheapest variable rate; you would be much better making repayments as if the loan was fixed and saving the difference to your redraw. Then, at a later date, use these funds to offset a higher payment if that scenario happened. This allows you to keep all the features of a variable loan and the security should interest rates go up."
If you're the sort of person who wants to know exactly how much you'll be shelling out each month for the next few years and values that certainty above the potential of saving some cash, then fixed rates are for you. However, if you can't bear the thought of missing out on a rate cut, then you might consider going for a variable loan.
For top-ranking fixed rate loans, check out the Your Mortgage website at www.yourmortgage.com.au.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan