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Ben Kingsley Blog post by Ben Kingsley

To Fix or Not To Fix?

With Australia missing out on a ‘technical’ recession, given the positive March quarter of GDP, most mortgage holders are now focusing their attention on interest rates.  Have we reached the bottom of this cash cycle and if so, should we be looking at locking in a low fixed rate, before rates start moving up?

The possible answer to this debate centres around the following questions, that are never easy to answer:

  • Is our domestic and global economy out of the woods?
  • Will employment pick up?
  • How quickly will variable interest rates increase?

All very difficult questions to answer and many professional opinions vary on the answer to these questions. In late June, the OECD and the World Bank both downgraded their forecast on the global economic recovery, indicating they believe it will take longer than first forecast for overall growth to rise and economic conditions to improve across developed countries. On the domestic front, our economy is holding up, however there are signs that small to medium size enterprises are starting to feel the pinch, which could impact on unemployment in the coming months as forecast.

Unemployment is a key lever when it comes to the cash rate, as higher unemployment usually results in lower rates. Therefore your financial decision to fix or remain variable is a decision based on the interest cost difference between the two current interest rates and your estimation as to when you believe the variable rate will move above the fixed rate and how long this takes, as this will determine where you will be financially better off to fix.

The finance team at Empower Wealth will be happy to review your current situation to assist you in comparing your options, to you can make a more informed decision.

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