One of the most often asked questions of mortgage brokers is whether a client should fix their home loan. If you find someone who will unequivocally tell you ‘yes’ or ‘no,’ your immediate next question should be to ask them for next week’s Powerball numbers. See, the real thing that most borrowers are implying when they ask their broker if they should fix is ‘what do you think interest rates will do?’ Brokers are finance professionals, who have a fair understanding of interest rates and economic markets, but they are by no means economists, or financial market analysts. Even if they were, you should be highly sceptical of someone who tells you 100% that interest rates will definitely move one way or the other.
To give an example, let’s look at the predictions of Shane Oliver (AMP), Savanth Sebastian (CommSec), Saul Eslake, and Stephen Koukoulas. Each of these gentlemen regularly feature on breakfast TV and news grabs, and are all highly respected experts in their field. Mr Oliver believes that it’s a close call, but a rate cut is likely on the cards in 2016. Mr Sebastian and Mr Eslake believe there will be no change this year, whilst Mr Koukoulas tips a rate rise by year end. With opinion so divided amongst the nation’s top finance experts, what hope is there for the rest of us getting it right?
Which leads us back to the question, should I fix my home loan? If you’ve read the previous paragraphs by now you would have worked out that trying to beat the bank or betting what rates will do is pretty difficult. So, the more appropriate question is, ‘why should I fix my home loan?’ The answer to that is certainty. If you are worried about rates going up in the future, and you would like certainty over what repayments will be for the next 2, 3 or say 5 years, fixing your home loan could be a good idea. If you plan on starting a family and would like certainty whilst you are on one income, fixing your home loan could be a good option for you. If you think you could probably handle an increase in rates but enjoy the fact that at your current repayments you would not need to curb your spending or cut out entertainment or other expenses, then fixing your rate could be a good option for you.
The bottom line is that the decision to fix your home loan is an individual one, and is more in tune with your lifestyle, personal circumstances and ability to sleep at night, rather than a gamble with the banks. When considering whether to fix your loan there are several other considerations to take into account such as break costs, ability to make extra repayments and flexibility of your loan.
Tower Mortgage Broking are a professional Sydney based mortgage broker. For expert home loan advice on how fixed rates might apply to your financial situation, contact us today.