PJT Accountants
Fixed or Variable? Which do Experts say is the best right now?
18 June 10 The last 12-18 months has seen a roller coaster ride for interest rates which leads many to ask the question, “Should I fix my loan?” Whilst there is still some uncertainty with variable rates, it has been very interesting to see some fixed rates decreasing over the last couple of weeks. A number of experts suggest that fixed loans are a better option if there is an expectation of interest rate rises in the medium to long term. However, they also warn that the benefit gained may not be enough to counter the fees you could pay to switch from a variable to a fixed rate loan.Jason Fong, Finance Broker with the Australian Loan Company, says “As with any home loan advice, the key is to examine your own financial situation, and only consider a change if the fees to make the change can be outweighed by savings benefits.”
Some experts point out that fixed rates rarely fall below the standard variable rate for a long period, and when they do it is usually a good idea to fix at least a part of your loan. Jason added, “Remember that you don’t have to fix your entire home loan. You can split the loan between fixed and variable rates with a split rate loan, if that’s going to work better for your situation.”
Split rate loans: the best of both worlds?
A split rate loan allows you to split your loan amount between fixed interest and variable interest rates. This means that regardless of the economic situation your loan will be partially suited to it. However, it will also mean that you will be unlikely to receive the full benefits of a choice one way or the other. “If you feel in this climate that at the moment it’s still better to be cautious, at least you’re covered,” said Jason.
Such a choice may suit your particular situation if you need some security, but also want the chance to pay off some of your loan ahead of time.
In the end your choice of a loan should be determined by your situation and your own financial priorities. It is difficult even for experts to make predictions about which direction interest rates will go in the long term – your choice needs to be made with your own financial goals in mind. For some it is the budgeting security of a fixed loan; whilst for others the flexibility offered by variable products is preferred.
“It’s paramount you take into account your income stream and need for security or flexibility,” said Jason. He added, “Remember, when a loan period ends you can fix the rate again, or switch to a variable interest rate which fluctuates with the market.”