Legally I can’t give you a direct answer and tell you to fix or not to fix your interest rate, but here’s what I can do.

I can tell you how to think about fixed rates.

With interest rates at an all-time low, and many lender’s fixed rates lower than their variable options, locking in an interest rate on your home loan to guard against future fluctuation may be attractive.

Firstly, let’s start with what a fixed interest rate is. Here is the definition:
denoting or relating to a loan or savings account with an interest rate that remains at a set level for a specified period of time.

Here are a few questions you can consider.

1. What are your goals for the next 1-5 years?
   Fixed rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early, selling the property or switching to variable interest during the fixed rate period. They call this break cost. So let’s say you fixed your loan for 3 years, 18 months into fixing your loan your circumstances change and you want to sell your home and payout the loan or you want to go back to a variable rate, then the bank will charge you a break cost, that amount is unknown and changes daily depending on the money markets. So when fixing your loan, ensure the term matches your future goals, needs and objectives.
2. What are the current fixed rates compared to your current variable rate?
   Fixed rates are at an all-time low, and they are lower than the variable rates being offered by lenders. Fixed rates usually give us a sign of where the lenders think interest rates will be. For example, the 1,2,3 and even 5 year fixed rates are low, which would suggest that lenders expect rates to stay low for that period. Let’s be real, lenders will do anything not to lose profits for their shareholders, which means they wouldn’t offer rates where they are likely to lose money, but they still take a risk. You can calculate the interest saving being on a fixed rate and then decide if the saving is worthwhile. Risk vs Reward. The question then becomes What if interest rates drop even further?
3. What if interest rates drop even further?
   If variable interest rates drop below your fixed rate, then that’s the risk we take when we fix our rates. I fixed all my loans at 4.29% for 2 years, 12 months ago, which means, I am now paying nearly double the interest that I could pay if my loan was variable. That’s the risk I took, and it didn’t pay off, who would have known that the world would shut down. But I have also seen customers that have saved a lot of money just by fixing their interest rates at low rates and interest rates increased shortly after.

In addition, consider the possibility of arranging a ‘split’ loan. This option allows you to split your loan between fixed and variable rates – either 50/50 or at some other ratio. This can allow you to ‘lock in’ a fixed interest rate for up to 5 years on a portion of your loan, while the rest is on a variable rate which may give you more flexibility when interest rates change and potentially minimise the risks associated with interest rate movements.

If you would like to discuss your personal situation to see if fixing your loan is right for you or to take advantage of the record low fixed rates, click the here to book in a 15 minute phone call.

“Risk comes from not knowing what you’re doing.” – Warren Buffett