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The Great Home Loan Debate – to fix or not to fix?

The Reserve Bank of Australia’s latest rate cut has fired up the debate of fixed versus variable again.

Recent Canstar research has shown that borrowers were better off remaining on a variable rate over the last 20 years. However, the end result was so close it was almost a 50/50 chance.

In 2015, a number of lenders quietly dropped their interest rates for fixed rate loans in an attempt to either gain market share or to anticipate the next move by the Reserve Bank.

In April 2016, Canstar reported that out of a database of 102 lenders, comparison rates were as low as:

  • 1-year fixed rates: 4.00%
  • 2-year fixed rates: 3.96%
  • 3-year fixed rates: 3.96%
  • 5-year fixed rates: 4.13%

With the average variable rate currently 4.74%, this makes fixed rate loans look very attractive, but will variable rates come down lower down the track? Fixed rate home loans offer some other major benefits; you don’t need to worry if interest rates rise and it makes budgeting easier.

If you do prefer the security of a fixed rate loan, the good news is you are slightly more likely to “get it right” if you choose a shorter 1-year fixed rate term. In fact, Canstar sighted the only years it was a really bad idea were in 1998, 2000-2001, and 2008.

So if fixing your home loan sounds so attractive right now, why has Canstar research suggested that only 15% of home borrowers have fixed rate loans? Most people in the past have fixed when the pain has become too great and they fear further rises. It’s not all bright blue skies with fixed rate loans though; rate drops will annoy you, break fees will apply if you want to exit a fixed rate contract early and it’s unlikely you will be able to make extra repayments or get an a mortgage offset account. Therefore and as always, it’s important to do your homework and check out all the terms and conditions.

Need more help to decide which is better for you?

ITL Financial Planning can put you in touch with our preferred Lending Manager who can conduct a complimentary review of your current loan to ensure it is still the best possible loan for your circumstances and requirements.

In choosing which Lending Specialist we refer our clients’ to, we critically evaluate a number of areas, including but not limited to:

  • Their specialist knowledge in Lending;
  • The number of loan providers they work with and the fact they are not aligned to any one provider;
  • The convenience they offer our clients;
  • The competitiveness of the interest rates and their ability to negotiate discounts;
  • The quality of their service to our clients; and
  • The speed and efficiency of the lending process.

Give us a call now. We can help you by providing strategic advice around a suitable debt management plan and putting you in touch with a specialist Lending Manager.

This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.

Written by Sheeren Churchill (Financial Adviser)

ITL Financial Planning and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. Any information on this website is general advice only and does not take into account any person's objectives, financial situation or needs. Please consider your own circumstances and consider whether the advice is right for you before making a decision. Always obtain a Product Disclosure Statement (if applicable) to understand the full implications and risks relating to the product and consider the Statement before making any decision about whether to acquire the financial product.