With speculation that interest rates could rise twice before the year is out, this could be the ideal time to lock in a fixed rate mortgage.
If you have a home loan, you’ve likely replayed the “fixed or variable?” debate over and over in your head as you try to figure out the best move for you.
Ask anyone who fixed their rates at the height of the GFC, when rates were tipped to reach double figures and punters locked in five-year loans at close to 9%, and they’ll tell you to stick with variable all the way.
But speak to another borrower who secured a 3-year rate of 4.99% when interest rates plunged in 2009, and they’ll have nothing but praise for fixed rate products!
It’s easy to see what the right decision was with the benefit of hindsight. But as a mortgage holder in the present, does it make sense to fix your interest rates today?
“I absolutely think there's a place for fixing rates, but not for the same reasons as most people think,” explains Medine Simmons, director of MF Simmons Mortgage Broking.
“It's a key part of risk management, not a way to 'beat the bank'. By that I mean, when you have a new mortgage and new repayments, a great way to manage the risk of interest rate increases is by fixing all or part of the loan.”
Simmons suggests that a great strategy is to fix half of your loan, so you can be sure of those repayments, while keeping the other half of your loan on a flexible variable rate. That way you’ll be cushioned against a huge repayment increase if rates go up, but you’ll still get some financial benefits if interest rate go down.
“The good thing is that right now, you won't be paying that much more than a discounted variable rate; it’s only about 0.5% more in some cases,” she says.
Keep in mind, though, that if you're only fixing your rate to beat the bank, you'll probably be disappointed, Simmons adds.
“They 'win' 80% of fixed loans, meaning rates usually go lower than your fixed rate most of the time. But if you're a bit nervous about your loan, fixing part of it is a great way to manage risk and start feeling comfortable about the repayments.”