March 01, 2013
Home loan rates have stayed stable now for a couple of months. The economy locally may not be as robust as the RBA would have had us believe at the start of the year and now there are definitely two schools of thought out there for the next direction in interest rates, so.....what are you going to do? Go and fix the rate for a period or stay put on a variable rate and take your chances?
Why fixing may be best....
1. You can guard against future rate moves. Many people are still wary of the effects of the global economy on Australia and are continuing to be fearful of further rate rises from the RBA that may be passed on to their home loan cost. A quarter of a percent rate rise on a $300,000 loan over 30 years will mean the difference in repayment per week of an additional $17. Is that a good enough reason to fix?
2. Fixed rates for two and three years at the moment are below current variable rates, so you may be doing better than you currently are doing on a variable rate. So it may make sense to think about locking in the rate?
But why would you consider fixing anyway when variable rates are so low?
1. The best thing about a variable rate is that if rates do go lower in the near future (and there are some predictions surrounding that) then you will reap the rewards of that and enjoy lower repayments once again. If you fix and lock it in then you may miss out on those savings!
2. You can pay much more off your home loan on a variable rate so you can accelerate your financial freedom goals by paying more off , where a fixed rate in many cases does not allow you to have that flexibility in many cases!Whatever you decide, fixing your rate should be done with an element of caution. you need to take into account your own financial and lifestyle choices as fixed rates are a bit more restrictive and come with potential strict penalties if not seen through to the end of their fixed term. Variable rates if endured for too long in a rising interest rate environment can lead to hardship in cash flow if not managed correctly.Each should be treated on its personal merits.
Call me to discuss individual figures.
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