Should you fix your rate?

It’s among the most popular questions we get – should I fix my interest rate?

The answer depends on your situation. And no situation is the same.

The one certainty is that we never know what the Reserve Bank is going to do with rates. Plenty of economists will tell you what they think will happen. History tells us that is impossible to predict rate movements correctly 100% of the time, even for Economists.

So, you have to control what you can control.

And that means sticking with your strategy.

It’s wise to fix your rate if you need certainty in your repayments.

If your repayments are close to what you can afford, you should consider fixing your rate. Then, regardless of what happens with interest rates during the period of your fixed loan, you have certainty.

You have to remember two important points for fixed rate loans:

  • You’re limited in the amount of additional payments you can make
  • You’re limited in the amount of changes you can make to the loan, including an early payout should you want to sell your property.

Break fees are the downside of fixed rate loans. They are to be avoided.

Your best option to avoid these costs is to understand your strategy, if you are capable of making additional repayments, work out how much you think those payments equate and structure the loan to allow that level of additional repayment. If you’re considering selling your property, make sure that you’re fixed rate matures before you intend to sell.

Strategy is key, if you’re clear on what you can achieve, then the loan product will execute the strategy which is far more effective than picking a loan product of the thousands that are available.
A good mortgage broker can step you through this, ensuring that you have the right loan, structure and strategy.

That’s what we do at Front Row Financial Management – and we’d look forward to helping new clients.