Fixed or Variable Rates?

In a persistently low interest rate environment and no particular reason for them to rise again over the next 2-3 years short of a full Euro and US recovery and its on flow effects worldwide, rates, even variable ones will remain competitive.

The difference between 2 year fixed rates and the variable rates at the moment is around 0.5%. If you like peace of mind and to eliminate your mortgage payments for the next 2 years as a variable expense in your budget, then by all means lock it in. As banks rarely pass on full savings when interest rates go down, the anticipated 2% interest rate from the Reserve Bank would only really translate to just another 0.5% saving that you stand to lose out on if you locked in now.

On the other hand, you never know when the RBA is going to cut rates and when those savings will flow down to you through your lender and at the same time, you’ll be paying a higher variable rate. 

My personal choice is to not hope and pray for lower rates, lock in an acceptably low one now and forget about it for the next 2 years.

Published on 20th of October 2014 by Marty Stanowich
Marty Stanowich
Marty Stanowich


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