Fixed or variable? Pass me the crystal ball….

Women with CentsBlog, Mortgage

You’ve probably heard that we are in an unprecedented market in Australia’s history when it comes to interest rates.

Why? Well, rates in the early 90s were at over 15%. Today, the interest rate set by the Reserve Bank of Australia is at 1.50% – which is a record low, and there isn’t a lot of room to go down further.

The general consensus is that rates will, of course, go up. But this begs the question, when? And could rates go up to over 15% again? Could they go higher? Would they come back down again? And the question on every home owners lips is the all important, what should I pick now for my home loan – fixed or variable?

Unfortunately, even the top experts on the subject can’t accurately predict the right answer to that question. But here are a few things for you to consider, before you decide.

Why fixed?

While a fixed rate can protect you from any rate rises, it does not offer you the benefit of accessing a lower interest rate should rates fall further.

However, if you want stability for budgeting in knowing your repayments, you don’t plan on making any extra repayments, you don’t have a large amount of savings that could be sitting in an offset account and you don’t plan on selling soon then a fixed home loan rate could be for you.

Why variable?

A variable home loan rate is good for all the opposites. For example, if you’re considering taking advantage of the current low rates and making extra repayments to knock that mortgage down as quick as you can. It can also be beneficial if you have some savings that could offset your interest or you’re thinking about selling. But keep in mind that your repayments will change as the rates change. That means up, or down.

Other things to consider

  • If you’re keen to lock in a good deal you could considering splitting – that is, having half of your loan at a fixed rate, and half at a variable rate. That way you can “hedge your bets” and see the benefits of both types of interest rates.
  • Don’t go paying the ‘lazy tax’. If you do your research you might be able to find a lower fixed or variable rate at another bank or lender. If you find a better rate, go to your current bank or lender first – they might be able to match the cheaper rate, which saves you the hassle of moving your loan!
  • If you fix your rate and then decide to move your loan, there may be significant fees for “breaking” your fixed interest rate agreement which might negate any saving you stand to make by moving.
  • If you have less than 20% equity in your home, then refinancing to another lender could cost you lenders mortgage insurance. And similarly if your circumstances have changed it might be difficult for you to be approved for a new loan so you may be better off just trying to negotiate your rate with your current bank.

What about you?

What rate do you currently have on your home loan – fixed, or variable? We’d love to hear why you chose your rate over in our WWC Facebook group. Hop on over and join in the discussion!

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The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.

Sova Financial Pty Ltd Trading as Women with Cents. ABN 71 163 435 836 | Sova Financial is an authorised Credit Representative Number 443432 of Finsure Finance & Insurance Pty Ltd, ACL 384704, ABN 72 068 153 926| Sova Financial is a corporate authorised representative no 468977 of Affinia Financial Advisers Limited, AFSL 237857, ABN 13 085 335 397