Fixed Rate Interest Rates VS Variable Rate Interest Rates

If you are in the market to buy a property, unless you are one of a very small minority, you will need to obtain finance to assist with the purchase.

The perennial question amongst borrowers, both new to the market and otherwise, is whether to lock in a fixed rate or to stick with your lenders standard variable rate.

There is no definitive answer to this question. The answer is predictably dependant on the borrowers own personal circumstances.

Some of us decide to fix because our circumstances dictate that the certainty of a fixed rate is necessary. For example, if your employment or income varies, a fixed rate may be more attractive as you know the minimum amount required to pay is constant. Alternatively, you may elect to have a variable rate for exactly the same reason thereby allowing you to make higher repayments than those scheduled without the penalties attached to fixed rate loans.

You should also consider whether your borrowing costs will be reduced by electing to choose fixed or variable loan.

Furthermore, if you are looking to sell in the imminent future, fixed rates may not be the way to go as the break costs for breaking a fixed rate loan could be disastrously high.

One option is to consider a split. Why not fix half of your loan and leave the rest as variable? Fixing your home loan needn’t be an all or nothing exercise. Alternatively, if sticking with a variable rate, look at an offset account which you can pour your savings into.

Historically, the long term average variable rate sits at around seven per-cent. With some super attractive fixed rate loans available, there are plenty of people currently locking these rates in.

One thing you clearly shouldn’t be doing is taking a punt on the future movements in interest rates. No one, including the so-called experts, has a 100% success rate in picking the winner come Reserve Bank Meeting day.

This correspondence is for the benefit of our clients and our friends. It is not intended to be construed as professional financial advice.   First State Conveyancing recommends that professional advice is obtained by borrowers before any action is pursued.