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Ben Kingsley Blog post by Ben Kingsley

Finance Talk: Time to Fix?

What an interesting 6 – 12 months we have seen in the lending markets, if you can cast your minds back a lot of the talk about 12 months ago was around how much more rates were going to increase and should we fix our mortgages or keep them variable? Now with the rates on a downward cycle again we are faced with the challenge of choosing to fix or remain variable.

In light of all this I thought it was time to share my views and insight into the whole fixed vs. variable debate (and for the record I have 100% of my loans variable for both my home and my investment properties).

In a rising interest rate market:

What’s interesting about a rising interest rate market when you are talking about loans all day to clients is when you start to get more clients than usual asking whether they should fix their rates or not. This is a trigger point for me to think that if a larger number of clients are asking to fix rates then since our client base is a microcosm of the broader market, there are a lot of other households starting to ‘watch their pennies’. When I see this type of event I start to form the view that the rising interest rate cycle could be not too far off running out of puff, and it won’t be too long (usually 12 -18 months) till we see interest rates coming back off.

The simple reason for this is that as households stop spending the economy slows down and a slowing economy is a trigger for the RBA to adjust monetary policy to get it back flowing again – lower interest rates.

NOW – not for a second am I saying you should gamble on rates coming down, you must always consider what you can afford and if rates did go a little higher then what that would mean to you – you don’t want to be in a position of defaulting on your bills just to try and pick the interest rate market. There are paid professionals who get it wrong so best to be safer and conservative, I say.

In a falling interest rate market:

The GFC event was a perfect example of market commentary getting ahead of itself. When the full impact of this global event hit our shores, there was talk about interest rates getting a low as 2%, so when the banks where offering rates around 4.99% fixed for 3 years etc most people said no, I’m going to wait until they get lower.

Well history on that occasion told us that those fixed rates were pretty much the very best rates we had seen in our market for many many years and those who tried to guess the market came up short. The lesson for this event was that when fixed rates look attractive in your mind then it might be time to seriously consider a play for fixed rates.

Your Decision:

The above examples I have noted relate to my experience and observation of the moving home loan markets over the time I have worked in them and prior to this when I was starting to put together my property investment portfolio. The decision I have made to keep my loans variable or fixing them in the past have been motivated around me and my family’s personal circumstances at the time we reviewed our loans. You too should only make these decisions based on your own circumstances combined with the views of your trusted finance advisor, remembering that we don’t have to lock in 100% of your loan to fixed or variable, you do have options and you need to explore what’s best for you now and in planning for tomorrow.

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