Another rate rise this week and possibly another to come this year - well it's pretty common as rates rise to wonder if you should fix your interest rate or not. As a result I've prepared a brief which examines the issues. It has some great graphs and facts about the history of interest rates. I have it in pdf form so you can email me if you’d like a copy. Briefly though most economists are predicting rates should peak in 2008 and decline in 2009/2010.
Interest rates paid by the consumer have averaged 6.49% over the last 10 years and 7.19% over the last 15 years, so we are above long term average interest rates with this weeks rate rise taking most variable loan to around 8.4%.
There have been relatively few times in the last 17 years when fixing your rate has been of benefit interestingly and my brief shows a graph from the RBA about this.
Finally there are still situations when fix you should consider fixing your rate – people can feel more comfortable with a fixed rate just like having insurance on your car, investors with multiple properties can be more assured of their long term cashflow. Investors who are highly geared could use fixed rates as a risk mitigant. If you are almost at breaking point with loan repayments you may be able to fix in a rising interest rate market at a rate which is below the variable rate.
The main downsides are the cost of being on a high fixed rate if rates go down and that there are restrictions on how much extra you can repay and redraw on fixed rates.
Disclaimer - This does not represent specific advice for your situation. For a copy of the entire brief and full disclaimer please email me on cpaton@chl.net.au
Regards Clint.
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