Lock it in or Leave it Alone?

Posted on June 20th, 2013 · Posted in News

If you’re paying off your home with a variable interest rate you should be seriously considering a fixed rate loan.  With the standard variable rate of the big banks averaging about 6.15%, their 5 year fixed rates starting at 5.64% and a cash rate of 2.75% – a 53-year low – just how much more inviting could the fixed rate options be?

The probable answer is, not much more. Unless you think Australia is heading for recession, that is.  Otherwise, it is hard to see the cash rate being cut from here by much more than half-a-percentage point.

Five years is a long time in the economic cycle, but since 1990 the cash rate has averaged 5.4%.  The potential problem with taking a fixed rate over a long term is that it increases the likelihood that the contract with the lender is broken before the term ends.  Peoples’ lives change. They upgrade their houses, pay off their house with inheritance, or sell because of divorce or unemployment. And, depending on the cash rate at the time, thousands of dollars may have to be paid to the lender in “break” costs.

That’s why is may be better to go with a short-term fixed rate or to split the mortgage into half variable and half fixed.

Why not speak with us to find out if fixing some or all of your loan will work for you.