January 13, 2016
This is a question I get asked a lot. It’s not an easy one as unfortunately we can’t fully predict the future especially whether interest rates are at their lowest point.
I have several customers who fixed at a great time and are glad they did it but I also have a couple of customers who have regretted their decisions.
While I can’t say fix or not to fix here are 5 things I can confirm you should consider before making your decision:
- 1. What is the difference in interest between your offered fixed and variable rate?
In recent years in Australia the Reserve Bank of Australia has only made small interest rate changes of 0.25% at a time, as they do not want to severely rock the economy. Given this, if one of the interest rates (fixed or variable) is significantly lower than the other, you may be better off going with this.
- 2. What are you planning job wise?
We can’t 100% predict where we will be in 1-5 years employment wise but if there is a chance you are getting a new job or a promotion with a higher income you may want to have the flexibility of being able to make extra repayments. If this is the case you may want to consider a variable loan.
- 3. How long you want to own your current home?
Fixed rate loans come with penalties for breaking them and can often be thousands of dollars. If there is a chance you may be relocated or you may want to upgrade or downgrade during the proposed fixed rate period you may want to consider going variable.
- Is there a chance you may get some extra cash?
Most fixed rate loans restrict how many extra repayments you can make. It varies between provider but the average maximum repayments you can make is about 5% of the loan balance. Given this if you are expecting to get a big chunk of cash through the sale of an asset or an inheritance you should consider going variable.
- 5. How comfortable are you making your repayments?
If your minimum loan repayments will take a large amount of your disposable income and you have little flexibility if interest rates go up, it may be worth considering a fixed rate loan.
A very popular choice is to split your loan between a fixed and a variable portion doing this means you reduce the risks of the above. The question then becomes what percentage should be fixed or variable – I can help you with this.
I hope this has given you a good overview. Everyone’s circumstances are different. If you would like to have a chat about your personal situation please do not hesitate to give me a call on 0412 697 726. This is a subject I love to chat about!