Waiting for fixed interest rates to hit rock bottom?Wait any longer and you could miss the boat.
You may not have noticed but while you were ringing in 2012 many banks started creeping their fixed rates up.
With the recent cuts to the official interest rate by the RBA and all the talk in the media about further rate cuts in 2012, you’d be forgiven for thinking that this will not only translate into savings for your home loan but you’d also be forgiven for thinking that fixed rates will keep falling.
Don’t fall for the hype! The truth is, it’s just not that simple.
The media and the government talk a lot of hype about the RBA rate cuts and how the banks should follow the RBA to the letter but, banks don’t buy their money from one source and the price is not determined by the RBA.
So, while the media keeps pumping out stories of further rate cuts in 2012, fixed interest rates have quietly begun to go up as the cost of funding has increased.
Have Fixed Rates Already Hit Rock Bottom?
With fixed interest rates on the increase, it looks like the fleeting days of fixed rates below 6% may be numbered (pardon the pun).
Of course, things could change again, and again, and again. With the current economic turmoil we are looking at a year of uncertainty and instability and, it’s likely that you have been thinking (or perhaps worrying) a lot more about your interest rate in recent months than you ever have before.
Take Control and Ride Out The Storm In Peace
Having to hold your breath and cross your fingers every month when the RBA makes a rate announcement and then waiting to see how it impacts your pocket is incredibly stressful.
If you could lock in your budget for 1, 2, 3 or even 5 years and not have the extra burden of financial stress whilst creating more stability and certainty for your family would that not be a good decision? Add to that, a low interest rate (which could save you money) and you’d be crazy not to join the thousands of Australian families who have fixed their home loan at a bargain rate below 6% p.a.
Should you fix your rate now?
The decision to fix your interest rate is a very individual and personal decision.
Are fixed rates for everyone? No.
How do you know if you should fix your rate? The best time to fix is when it works for you and your needs.
If you want to provide some stability for your budget and take some financial stress away from your family then a good time to fix your interest rate is when the fixed rate is low and when it looks like rates may start going up (rather than down).
The Barefoot Investor seemed to be on the money back in November 2011 with his article Home Loan Deals: Fixed or Variable where he correctly predicted that the official interest rate could come down (which it has) and that if cautious consumers continue to slow their borrowing (which they have) the banks would scramble for their business next year (true again).
I’m sure you heard about all the cuts to fixed rates before Christmas but again, did you notice the banks starting to creep their fixed rates back up?
There are some lenders that haven’t yet raised their rates (including Illawarra Home Loans) so perhaps now is the time to start taking some action.
By fixing your interest rate now you can lock in a rate as low as 5.81% p.a. (for 2 years) and for the next 2 (or 1-5 years) it means that you know exactly how much your mortgage will cost and in these uncertain financial times you can take control of your money and create some stability for your family.
Of course, there is still a chance that rates may come down further but, there is just as much change that they will go up. Looking at the average rate over the past 10 years and getting a rate lower than that can also help your decision.
Everyone Seems To Have An Opinion On Fixed Rates
Fixing your rate seems to be a little like choosing a political party. It’s one of those things that whatever decision you make, there will be at least one
‘know-it-all’ person at the BBQ gathering with an opinion on fixed rates and when you should fix.
I had been trying to work out whether or not to fix my interest rate and was going through the same scenarios that you are likely going through now. Just before Christmas I put the many conversations and debates to rest and decided to fix my rates and release myself from the burden of instability and the stress of watching my rates fluctuate for the next 3 years.
Once I had made the decision to fix my rate, all of the
‘know-it-all’ opinions came out of the wood work but at the end of the day I made an informed decision based on the following factors:
- A rate under 6% p.a. is a good rate when you weigh up the rates over the past decade
- Being a first home buyer I was a little nervous about taking on a mortgage and the extra costs involved in owning a home. Fixing my rate means I have one less (big) thing to worry about.
- I didn’t want the stress of watching my rates go up and down in an unstable time
- I wanted control of my budget
At the end of the day, you need to make a decision based on your own financial and emotional needs and only you know what’s best for you and your family. But if you’re waiting for rates to keep dropping, you should start looking at your options now before you’ve missed the boat.
So will you fix your rates and sail smoothly through the turmoil? Or, would you rather buckle up for a nail biting roller coaster ride?
Share you’re opinion and experience in the comments below.