Rate choices can change lifestyles

To choose a flexible or a fixed interest rate?  That is the question for many house owners.  With the RBA making another decision this week on interest rates, it’s the ideal time for homeowners to reflect on the state of their loan, writes Andrew Winter.

South-East Advertiser, Wednesday, Feb 5, 2014

Selling Houses Host Andrew Winter

Andrew Winter

Selling Houses Australia host Andrew Winter

THE new year is shaping up to be interesting.

Sadly, this does not mean I am in possession of some top information, retrieved via encrypted message from a satellite.

Rather I mean “interest rate” interesting.

For those of us encumbered with mortgages – or able to be – this is important.

This is because the level of interest charged by lenders can be the difference between your daily coffee being a small flat white or a supersize grande double shot mocha with low fat yak’s milk.

Or more seriously, interest rates can be the difference between living comfortably financially and really struggling.

A recent report from Westpac chief economist Bill Evans gave predictions for interest rates for 2014.

It is fascinating reading as banks need to provide a balanced analysis as their customers are not only home loan slaves but savers too.

Now in no way must you take an article written by me as an assurity, but when I read this information, it made me decide to fix my home loan.

I’ve been considering this for ages.  I waited and waited, but even with the predictions some minor rate cuts may occur in 2014, it seemed right for us as a family now.

Deciding to fix or stay variable is a personal decision that each person needs to take based on their own financial circumstances.

It depends on many elements, not just RBA rates, but deals lenders and brokers will offer you.

The key is to assess the information on how it relates to you and your financial goals and fully understand that playing the fixed rate game is exactly that – a bit of a game, a bit of a punt, with a genuine risk factor built in.

I do consider RBA rates will vary a number of times this year – it is even predicted they could drop further.

Will that decrease be significant and will it translate into more competitive fixed home loan rate loans?

Many experts do believe if we are not at the bottom of the interest rate cycle we are pretty close, and history tells us that.

Rates in the UK and US have not gone down further in recent years and these countries have similar housing markets where home ownership is a typical financial and personal goal for many people.

You can only lock in rates in this country for a limited period of time.

Alternatively, you can fix a portion of the mortgage leaving the remainder of the usual variable rate.

There are penalties if you want to sell up and pay off the loan.

So should you or shouldn’t you fix?

If you’re sure you won’t need to sell up or pay off within the fixed term period; if you like certainty, like to set your budget and hate financial surprises, then choose a fixed rate.

But if you’re unsure about your housing needs over the next few years; if you feel home loan rates are likely to decrease in forth-coming years; if lenders deals are not attractive and are set much higher than variable rates; and if you can cope with the highs and the lows and know how to put money aside when rates are low to cover the other times, then choose a flexible rate.