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Hewison Insights
Interest rates

To fix or not to fix?

Glenn Fairbairn
Director/Private Client Adviser
28 Jul 2014

Last week the country’s major banks slashed their five-year fixed mortgage rates to 4.99%.

Not only are historically low cash rates driving down mortgage rates, but the big four banks are in a fixed rate mortgage war. This fierce competition is great news for mortgage holders.

So, is now the best time to fix the rate on your mortgage, or should you hang in there in the hope of further rate cuts?

Economists believe current fixed rates are a good deal and with the expectation that interest rates are due to rise in the next 12 to 18 months, now may be a better time than ever to fix.

However, there are many people out there who were burnt from locking in their mortgage rats leading up to the Global Financial Crisis (GFC). Fixed rates were popular in and around 2007 when mortgage rates were on the rise and many thought double figures were a possibility. Who would have thought the GFC would result in cash rates being slashed to never before seen levels?

In my experience, variable rates have provided mortgage holders with the best outcome over time. However, there is no one-size fits all. If loan repayment certainty is a high priority then perhaps fixed rates are the way to go.

If the decision is made to fix the rate on your mortgage, my advice is to consider the following:

  • Are you able to make additional repayments?
  • What break costs are incurred from switching to another loan or repaying early?

If the above seems all too confusing why not hedge your bets and get the best of both worlds. Splitting your loan between fixed and variable can provide the certainty of fixed repayments for part of your loan and the flexibility from a variable loan.

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.