So rates are at historic lows. So is it a good time to fix some or all of your loan? Many people say to me, Well, I can’t see rates going any lower. So should I be fixing?
My first thoughts are, don’t base your decision on what you think might happen with interest rates, because at the end of the day, it’s really just speculation. If the best economists can’t all agree on the future of the economy, well then no one can really say with any certainty what will happen. What you can do, however, is make a decision based on what is right for your personal circumstances.
You need to consider some of the following, if there’s any chance that you may sell the property in the next few years, if you need some comfort around your budgeted repayments each month, for example, if you’re planning on starting a family and will have increased expenses and less income for a period, or if it just makes you feel better having certainty around repayments, or if you’ll have some extra savings that can offset the loan or pay it down quicker, these are all factors to consider when thinking about fixed rates.
Generally, with fixed rates, you are capped at the amount of repayments you can make each year above the minimum, and extra repayments often aren’t available for redraw during the fixed period.
Also how you will feel if you take a fixed rate and then rates decrease. In my experience, most people want to look at breaking the fixed rate, and then will incur significant penalty fees to do so. Essentially, once you’re locked in, you’re locked in.
Another little known factor is if you need to refinance. Now, most people assume they refinance for a lower rate, but often you refinance for other reasons. For example, your current bank won’t let you access enough funds for renovations compared with the credit policy of another bank. If you have a fixed rate, you can be hit with penalties to move lenders.
If you do want to fix given rates are historically low. I don’t think you can really go wrong with a fixed rate. What most people do is actually split the loan into two and keep one variable and one fixed, thereby giving you the best of both worlds.
