Fixed Rate Mortgages vs Variable Rate Home Loans in Australia

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Currently We are receiving many questions about what to do in regards to fixing or staying variable.

Now while I have my own personal opinions about this I am not actually allowed to advise clients on this. Why you might ask?……… Basically it comes down the fact that I cannot control the outcome. I simply can’t read your mind and I can’t say with absolute certainty that rates will decrease, increase or stay exactly the same. Even economists get this wrong on a regular basis!

So what can I do to help you? Well in order to choose the right mortgage strategy for you we look at your short to medium range goals. Eg. there is not much point fixing the rate for 5 years if you plan to sell in 2 years- as you may incur substantial costs in breaking the fixed term. We also look at your cash flow. If your near the limit of your comfortable repayment amounts then maybe a fixed rate (or partial fixed rate) is the way to go as it gives security. Obviously if variable rates decrease then your mortgage is not as efficient as it could be. However the comfort and security of rates not increasing has a price, and this is it. I tend to equate fixed rate home loans to an insurance policy. In that you might not use it (claim every year), but it protects you when you do need it.

One current client is thinking about moving to a fixed rate but is being told what to do by people around the water cooler. This is confusing her, as how does she know who is right? The problem is they may all well be right for their own unique situation, but not for her.

My advice to my client and to all people thinking about this question is to do a cash flow analysis, write down your short to medium term goals and think about your own circumstances and what is important to you. Use someone like me as a sounding board even, and if your honest with yourself the answer will come. Whatever you do decide to do

Interest rate vs total borrowing
Be happy knowing you made the best decision with the information available at the time.

As for my client…….. I have a sneaking suspicion she will have 1 foot on each side of the line very soon. 

Once again, feel free to contact us and use us as a sounding board.

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