To Fix Or Not To Fix? Should That Really Be The Answer?

by Virginia Graham on January 17, 2012

I usually find it strange that when a market is most likely near its low, as it is now in Australia with current IRs, the lowest in 30 years- that now folk choose to debate as to whether they should fix their IR on their home and investment loans?

For this arguments sake I’m assuming the customers do not have to break the loan for the set term and don’t really want to have the flexibility to pay off the loan. They’re solely desiring to fix to try to out guess the market.

If they miss the bottom of the dip maybe they will pay 0.25% more by staying variable now and fixing later , yet if they fix today they save 0.5% on current rates. To have all these long winded debates on what to do baffles me. When variable rates are marching up at an all time high and fixed rates were comparatively inexpensive it was truly hard to sell a cheap fixed rate. The shoppers that fixed then did very well.

There are never any promises with rates and no one can utterly envision the future but the explanation of folks still baffles me.

I used to be a stock broker and I saw the same pattern there. Nobody wished to buy shares near the bottom of the price market- iethe least expensive and best time to buy shares.) Instead all of them wished to see the shares go up first, but they didn't watch the market and trusted when everybody including all the people at their last soiree including the taxi driver on the way who purchased share, then they'd buy- when the market was peaking.

So my answer is this, if you really want to out guess the interest rate market, then to buy anywhere close to the bottom is good. The question you really need to be asking is why are you handling your interest rate risk through making a guess, when the entire point of fixed rates is to take out the danger that variable rates could go higher than you can afford.

Virginia Graham is a former interest rate dealerand is presently a broker at Central Coast Mortgage Broker .

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