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To fix or not to fix interest rates?

The question of the hour is ‘should I be looking at fixing my loan now, or should I hold out for the December decision.’

Firstly let me say, I’m tipping a cut to December rates by 0.25 percent. It would be naive of the RBA to try hold off the January to cut rate.

If you watch closely, the banks normally shift their fixed rates before a decision or reduce their rates when they feel that a cut maybe on the cards. This to me reflects that the banks are trying to lock in a rate of return they are comfortable with against hedging the actual interest rate movement.

So, should you fix? Right now I would be watching the December decision. If you’re in the process of currently sourcing a new loan that is for long term investment or your principal place of residence that you will stay there for longer than three years then fix. You will never pick the bottom rate and if you do it is just luck and timing more than good management.

Fixing you interest rate is great for people on a budget or for investment properties. You do have to be aware of the downsides, like high break costs, you can’t pay off your loan quicker and the variable may move lower.

A lot of people worry about trying to pick the bottom to fix versus the variable. I would suggest that you think of it over the three year term. If variable rate move upwards you are in a better position fixed then you are variable if you average out the rate over the three years.

If you are looking to refinance to a better deal, (highly recommended in this market) I would be waiting till either closer to the December decision or till after the announcement. The big four dropped their rates in November, but there was reluctance.

There has since been more come out about the Euro debt crisis and I feel that this has put pressure on our economy and the RBA will need to cut rates to keep the economy going, especially coming into Christmas.

So, if you are currently buying I would look at fixing, if you are refinancing I would start looking around at rates and then waiting for the December decision, however if the rates do drop 0.25% most fixed rate will still be cheaper with some of them 0.50 percent below the variable rate. So for you to lose there would need to be three rate cuts within the next three years of 0.25 percent each. Unlikely?

What do you think?

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Brad Callaughan

Brad Callaughan

Brad has more than 9 year’s professional accountancy experience. Brad has worked in senior management roles within Taxation and Business Services dealing with a number of clients from a range of business sectors. Brad is an avid property investor and renovator and has always been involved in small business ventures since the age of fourteen. Callaughan Partners was formed to deliver and exceed our client’s expectations; the continuation of this is the driving passion and focus of our business. Brad enjoys developing his own business interests and property portfolio along with his interests in golf, horse and dog racing, sports and fishing.

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