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Ben Kingsley

20/04/2015
Blog post by Ben Kingsley

Is Now the Right Time to be Fixing your Loan?

So is now the right time to be fixing your home loan? One thing that I want to talk about today is to try and explain to you how fixed rates works versus how variable rates works. The first part of this story is, variable rates which is obviously the rates that we see changing when the RBA does their cash rate decision is what we set those variable rates on, so they can fluctuate. Fixed rates however, are set by the bond market, the 3-years, 5-years and 10-years bond rates. Now, what we’re seeing globally is a lot of countries printing money and a lot of Central Banks printing money because their interest rates are so low but they still need to stimulate their economy. When you print money, you basically need to then invest that money or have that money pushed out into the marketplace and what that’s done is it collapse the long term bond rates. What that means is that the Banks who are going to be lending money on the fixed rate terms can go out there and buy that money very cheaply. So that’s why we see fixed rates also comes down the same time the cash rate or the variable rates coming down as well. We’re now at the stage where we’ve never seen rates as low as we’re seeing in the fixed rate side of things and we’re certainly talking to our clients about whether it’s the right time to fix. Now, sometimes in these situations where the variable rate is potentially going to go down again, people can start to be a little greedy. They want to pick the market. I’ve been doing this for over 10 years now in terms of looking after clients and their mortgages and I can tell you that it’s a crystal ball stuff.

So, are rates going to go down again? Maybe not, maybe they will. How long are they going to stay down? We don’t know.

So from that point of view, I always say to all clients is you should be fixing your loans now or a percentage of your loan now because they are lower than they were during the GFC. So I would be looking to fix a portion of that loan now.

The other time when I will also say to client fix their loan is when their budget needs it. So right now, people are sort of saying, low standard variable rates, low variable rates and you know, it’s not sort of putting pressure on the family budget. But by the time you start thinking it is putting pressure, those fixed rate would have move higher as well so don’t be too greedy. Start to sit down and talk to your advisor, talk to your mortgage broker about whether it’s the right time to fix a portion of your loan or fix even more than that but keep a variable portion as well so you can use your offset account. So, my message today is, fix does make a lot of sense, those three and five years fixed rates are exceptional value at the moment. Will they come down a little lower? I don’t know but if it’s 20 basis points now that you are thinking and ‘umming’ and ‘ahhing’ about, well, in reality, if rates moves up to 6% in 3 years time and you’ve got a 5 years fixed rate back at sort of 4.6% – 4.5%, seriously you would be clapping your hands about the benefits and the savings you would be making for your household. So it is a good time to start thinking about fixed rates and I’ll be saying, take the opportunity also to speak with your mortgage broker about alternative refinance options so your lender may not have a competitive fixed rates in the market but others do. So, go and talk to a professional and licensed broker and of course, we’ll be happy to hear from you if you want to talk to us.

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