When to fix your interest rate? You can’t outsmart the banks

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A common question we get asked is; when to fix your interest rate?

Although the answer to this may vary for different peoples risk tolerance and attitude to debt, the message behind it is clear.

As a rule of thumb, if the fixed rate is higher than the variable rate, the banks think rates are going up. If the fixed rate is lower than the variable rate, the banks believe interest rates are coming down. The bottom line is, if you think you’re smarter than the banks, go ahead and fix your rate. Otherwise leave it on variable and put the rest of your money into your buffer.

For 18 months straight the Reserve Bank of Australia (RBA) left the interest rates on hold at 2.5%. Before January 2015 the banks were offering great fixed rate deals for under 5%, a lot of people were jumping at the opportunity to fix and did, now we have to admit, an interest rate of under 5% is great and isn’t something to complain about when the national average is closer to 8%, but in January the RBA decreased the interest rate to 2.25% which meant the interest rates now for most banks are less than the fixed rates they were offering. This highlights the point that, you can’t outsmart the banks. If they are offering a lower fixed term than variable interest rate it is because they know the interest rate is likely to go down.

We currently have historically low interest rates and there is talk of maybe one more drop for the year before economists believe it may start to increase in late 2015.

If you would like to speak to a specialist about your situation and what’s right for you contact us.

 

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