People are starting to get just plain greedy when it comes to interest rates.
Not that long ago, the demand for fixed rate home loans was through the roof, and understandably so considering you can pay as little as four per cent interest on some mortgage products.
Rates have not been this low in, well, forever, and once the RBA calls off the party and begins hiking them again, they probably won’t be this low again anytime, well forever.
But what is that whisper we are hearing?
Rates are going to go down again?
Yes, in fact they are more likely to keep going down than head north again this year according to most economists.
Therefore, that huge demand for fixed rate loans has fizzled out with mortgage applicants taking a punt on a better deal in the near future.
On the first Tuesday of each month now, home owners are salivating like Pavlov’s dogs, waiting for the RBA to ring that sweet discount bell once again. And while I might have said it was plain greedy, you can’t blame people for not wanting to fix.
No one wants to lock in a rate while they are on the way down and miss out on the next one. Plus, it won’t hurt to keep a bit of our money away from the banks for a change.
However, it really is rare to see loan repayments around four per cent and it’s not always about how low the rates are. You also need to fit the bill.
So if it suits your situation and you are at the right stage of your home ownership journey, now is actually a pretty good time to lock in a fixed rate. But how do you know fixed rates are right for you?
For starters, anyone who likes a weekly budget with no surprises will benefit from the routine certainty of a fixed rate mortgage.
However, fixed loans aren’t as flexible as variable rate mortgages, which usually come with a stack of extra features.
The best ones include the ability to offset or withdraw money against your mortgage and also to make unlimited extra repayments in order to reduce the balance of your home loan and therefore the interest you pay on it.
A fixed rate loan is more restrictive and will rarely have such features. So, if you like to throw an extra few grand at your home loan when you can, a fixed loan may end up being more expensive than a variable, even with a lower headline rate.
When you choose to fix for a certain period, you are locked in. It may not be like the foreign legion, but be sure you won’t need to sell or refinance during that term, or you may end up facing heavy break fees.
One option is to split your loan and fix one portion, while paying variable rates on the rest. That way you can get some benefit of favourable rate changes, while minimising your exposure to risk.
Tim McIntyre is the senior real estate reporter for the Daily Telegraph and News.com.au.
Over the past decade, he has attained widespread knowledge of Australia’s many unique property markets and is an authority on all things buying, selling and investing.
His commentary appears every Saturday in the Daily Telegraph Real Estate lift out, as well as online at news.com.au