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Time to fix your interest rate?

Marty McDonald - Friday, July 09, 2010

I will be looking at fixed rate loans today and whether they are worth considering now. There is a link to an article about St.George dropping their 2 year fixed rate appeared in today’s Sydney Morning Herald. Over the last few days we have also had ING and a host of others drop their fixed rates.


The decrease in fixed rates has narrowed the gap between the variable rate most people pay on their loans and the fixed rate loans on offer at present to the much closer than they have been for a while (not this close since early 2008). Currently 3 year fixed rates appear to be the best option with some offered at only 0.5 % - 0.7% above what the best variable rates are. There a quite a few 3 year fixed rate options at around 7.39% pa. This compares to competitive variable rates of around 6.75%pa (difference 0.64% pa).


The main reason for the drop in rates is that money markets over the last couple of weeks have been pricing in a lower chance of significant interest rate increases in the medium term and short term money markets have been tipping no increase or even a slight chance of a decrease in rates in the next few months. Banks being banks take a few weeks to filter these lower wholesale rates through to actual fixed rates offered for sale. (This trend may change with the strong unemployment figures out today).


So what does all this mean? It means for the first time in a long time there is some value in considering fixing in your home or investment loan(s). One school of thought is that the money market is wrong; inflation is over the RBA’s comfort level, we are near to full employment, the current pessimism of world stock markets is overdone and therefore rates will go up and by more than just a little. I think the reality as I said in an earlier post is that rates will go up next year by around 0.5%.  But I have been wrong before plenty of times and so has the money market! So if any of the below reasons for fixing resonate with you I would recommend you jump on these fixed rates soon as they may not be around for long especially if the money markets become more optimistic. That said fixing your loan is definitely not for everyone, below is a short pros and cons list..


So should you fix in your home or investment loans?


No if....

  1. You plan to sell your property any time in the next 3 – 5 years.
  2. You are not worried about rates going up.
  3. You want the flexibility of making large lump sum extra repayments.


Yes if....

  1. You don’t know if you would be able to afford your repayments it if rates went up by more than 1%.
  2. You think the money market has it wrong and the economy is going to power ahead.
  3. You think the banks will be forced to raise rates outside of RBA increases due to a global credit squeeze.
  4. You just want to set and forget for the next few years.


There is also the option to split your loan with most lenders with some on a fixed rate and some on a variable rate.



If I can assist anyone who is thinking fixing may be a good idea for them or if any one has any home loan related questions please contact me. I also appreciate your opinions so feel free to reply with your thoughts on this post. Please also feel free to pass this on to any one you think may find it of interest.





Marty McDonald

About the Author: Marty McDonald is principal of mortgage broker “Mortgage Experts”. Marty specialises in assisting active property investors with loan structuring advice and implementation as well as helping credit worthy borrowers with slightly outside the box income and employment situations. Find Marty on  and LinkedIn.

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