I am often asked about fixed rates, especially at the moment. Fixed rates have a place, that being a very small one. I generally try and advise my clients away from fixed rates due to the inflexibility of the fixed products. Whilst they are very good from a budgetary and cash flow situation that will allow you to create a stable budget for your family, they come with minimal additional features.
Whilst every lender has their own variations to this, as a general rule you have the following limitations
- You can only pay an additional $10K per annum over the fixed rate term
- You do not have the advantage of having any Savings you may have to offset the debt and minimise Interest
- Should circumstances change and you have to sell, penalties of exiting can become very expensive and the calculation of this is very difficult as the banks use an “Economic Cost” as penalty
Whilst I am very active in the loans market and have confidence in my understanding of where the market is heading, none of us are as involved as the banks. Banks generally have their 2, 3 & 5 year rates at a level where they feel they will win over that term. They use 1 year rates to get clients in which then roll into higher rates after the first term. We therefore need to be well informed and armed with the facts in order to make the decision that is ‘right for us’. If you want to get an idea of where interest rates will be in 3 to 5 years’ time you should look at the major banks’ fixed interest rates. Most are sitting in the mid 5% to low 6% range, which is where variable rates are currently sitting. For a long time I have said that a fixed rate below 5% is certainly worth looking at, especially when you compare it to the 9.8% that we had 5 years ago. It may not be good if the variable rate ends up at 4%, should the economy continue to struggle.
My advice if you are thinking about fixing is to make a time to sit down with me,together we can look at the figures and assess your personal circumstances and the best options for you.
Simon Birch, Sandridge Financial Solutions
Please contact Simon on 0411 536 809 if you have any questions