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The Reserve Bank of Australia

Should I fix my home loan rate?

Simon Curtain
Partner/Private Client Adviser
9 Sep 2013

The Reserve Bank of Australia kept interest rates on hold this month at 2.5 per cent.

With interest rates at an all-time low the question is; should you fix your home loan rate now or keep it variable? This is an age old argument, mostly because there are pros and cons at both ends.

While fixing your rate brings peace of mind (as interest repayments will not vary over time), it can also hurt you financially if interest rates decrease as you aren’t able to take advantage of these savings.

Take the period between 2007 and 2008 when the RBA cash rate was around 7.25% and many feared that rates could hit double digits. If you were to lock in a fixed rate during this period you would have missed out on considerable interest savings generated by rates falling to 2.5 per cent over the next 5 years.

Trying to pick the best time to fix your home loan rate can be fraught with danger as you are essentially betting against the Banks economists who forecast interest rates into the future and use this data to arrive at a fixed rate.

In my opinion, keeping your loan variable is the best option as this way you are not locked in and have the added benefit of making additional repayments to your home loan (often with a fixed rate you are prevented from making additional repayments). While a fixed rate will provide certainty, if rates move against you, it can be very costly.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.