Small banks put new spin on fixed vs variable
Are you keeping up with those big news events that are supposedly affecting interest rates?
This year, we’ve had the likes of Brexit and the election of Donald Trump creating uncertainty – prompting some people to think it’s time to fix their interest rates.
Earlier this week, the Reserve Bank decided to leave rates unchanged until its next meeting in February.
And then we had the news that Australia suffered a significant economic fall in the September quarter, placing us one bad quarter away from our first recession in 25 years.
There’s a lot to keep up with.
Amid all that, the decision on whether to fix your interest rate or to go with the variable rate doesn’t have to be complicated.
The temptation to fix is obvious because, most times, interest payments are the biggest expense involved with any asset, whether it’s your home, investment property or shares.
It’s attractive to get certainty over those payments.
But, on the downside, you don’t have the chance to make lump sum payments should you get ahead in your finances.
Before you consider fixing, you need to understand your holding strategy for the asset. If you intend to hold the asset for three years, you shouldn’t fix the rate past three years. If it’s five years, don’t fix it past that time.
You want to avoid a break fee – it can be the difference between a profitable or a losing financial transaction over time.
But there are ways you can get the best of both – and this is where mortgage brokers help.
The big four banks won’t let you do this, but there are others who are offering fixed rates with a linked offset account that acts as a lump-sum home.
Right now, we’re using a smaller bank that is offering a three-year fixed rate of 3.69 per cent with a 100 per cent offset linked account at no extra cost.
These offset accounts help to take the sting from the fixed versus variable decision.
And you’ll only get these options with mortgage brokers who will always look for the best option for your circumstances.
If you want to talk about fixed versus variable, let us know. You won’t be the only one.