Given the very large debts most of us carry, whether to fix in the interest rate on your mortgage is one of the most vexed questions in personal finance. The stakes are high
Whether to fix in the interest rate on your mortgage is one of the most vexed questions in personal finance.
Of my $750,000 outstanding home loan, I've fixed the interest rate on $300,000 at 2.19 per cent for two years. The remaining $450,000 chunk remains on a variable rate of 2.69 per cent.Why did I do it? Basically, I’ve taken a bet that variable rates won’t fall by more than half a percentage point over the next two years. If they do fall by 50 basis points, that would bring my variable rate down to 2.19 per cent, leaving me no worse off.
But that action is more likely to come in the form of an expanded program of bond purchases, rather than a cut to the cash rate. More likely, banks will save their rate cuts for the borrowers they want to attract or retain, such as people with lower loan to value ratios or more secure income sources.Should such customers threaten to leave – or, indeed, do actually switch to a competitor bank –these customers can already score big rate discounts.
Then, if you’re feeling lucky, like me, you can consider fixing in some of the low fixed rates available in the market, some as little as 2.09 per cent.
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