Should I fix my rate?

Rates are starting to creep up!!

We are coming out of a really low-rate environment where we have been able to fix rates at record lows of under 2%! You might have noticed banks have been slowly raising rates since before Christmas.  At the same time variable rates are dropping – some lenders are under 2%.

I thought it might be a good time to go through the pros and cons of fixed rates.

I still have a few clients that fixed a few years ago, when again, we had record low rates of 4.5%. While this may have seemed like a good idea at the time, we now have fixed rates at 2.89%.

Fixing your rate can be a little like betting against the house in the Casino – the house always wins.

So why would you do it?

Fixed rates offer certainty.  You know exactly what you are going to repay for the next 1 to 10 years and that can be a great thing.  

Fixed rates also give the lender certainty you will stay with them for a set time.  If you break that fixed rate early you may pay a break cost. 

You are also limited to the number of additional repayments you can make.

You may not be able to use offset on a fixed rate, although some lenders do allow a partial offset.

Partial offset is where the portion of the home loan that is equal to the amount you have in your offset account is charged a lower rate.  This varies from lender to lender.  It’s important to understand the impact of partial offset versus the full offset you may get on a variable rate loan.

Certainty is a big reason to fix your rate. I have clients about to take a large amount of time off to have children or return to study.  It can also be a good strategy where you have an investment property and want to make sure your rent will cover repayments long term.

In short fixing, it might be a gamble! Depending on when you decide to fix.  For instance, just before Christmas, rates might have been 2.49% and in January jump to 2.89%. In two years, they might be 3.89%, or they might be 1.89%. It’s hard to predict. Even with the Reserve Bank talking about a 2024 rate increase.

Message or call us if you are thinking of fixing! We are here and ready to chat.

Phoebe x