Can we FIX it? The Fixed or Variable Loan Debate

With the current climate, rates just keep dropping and continue to look like they may drop again, so deciding the right time is alway hard. There is one thing you should be doing every year, and that is ringing your bank and asking for a discount on your current rate. Each time if you can get a small percentage off, it all adds up and shaves thousands off your mortgage.

It’s inevitable that with a historically low cash rate coupled with fixed home loan rates at never seen before lows as of late last year, the debate to fix your home loan or stick with the variable rate is always on.

Fixing your home loan raises many questions…

Is it too early? Is it too late? What features will I lose? Is it hard to do?

If you’re asking these questions then you’re asking the right questions. Fixing your home loan can be an incredibly smart option while rates are low but as with all financial matters it depends on your financial circumstances.

Fixing your home loan means that you can budget without fear of variation for as long as the loan is fixed. This means that no matter what the banks do, you know exactly what your repayments will be for 1, 3 or 5 years depending on how long you fix for.

Fixed rate loans aren’t usually as fully featured as variable loans. This means that in the past you could not get an offset account or pay off the loan quicker without penalty. This has changed recently though with some banks offering these perks as well as a fixed rate loan.

Don’t try to beat the banks

Unless you have a crystal ball you’ll never know when the Reserve Bank (RBA) will put the cash rate up, which in turn cause the banks to increase their rates. But for interest sake, we’ve checked out the variable rates since 1959 – 2011 as recorded by the RBA. Over the 52 years the average variable rate was 8.77% whereas the median was 7.80%.

This is good to know, because most home loans are for the long haul. So when doing your figures if you budget for the interest rate to average out at around the 7.5 – 8.5% mark you will have a better idea of the affordability of the loan.

By the numbers

If you’re looking down the barrel of the next 5 years and need certainty on what your repayments will be, for example you may have kids on the way, or kids going to school or a lifestyle change.  Then fixing your loan now may very well be an excellent option.

There are also some great benefits in going with some variable rate loans being offered by the banks. So if certainty isn’t critical you may be able to get yourself a really good deal.

OR you can hedge your bets and fix half of your loan.

If you’re in a position to do so, this can be an excellent time to borrow money. Money is as cheap as it’s been for 50 years. Whether it be for property or to invest in the stock market. If you’ve been sitting on the fence now may be the time to act.

Call us today to discuss YOUR situation or if you’re looking for a broker to get your sorted, because you don’t have the time we can help.


*This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.