Fixed Loans
To Fix or Not to Fix…
Variable rate home loans are now over 9 per cent, and fixed rates are not much higher and indeed in some cases are lower. So why should we or shouldn’t we fix our loans?
One reason many investors always fix their loans is because they then have certainty as to how much will be flowing out of their bank account in interest payments and are then able to budget their property investing activities.
To make a decision, borrowers should ask: “Am I at the end of my pain threshold?” If you answer ‘yes’ to that, definitely take a fixed-rate loan. Give yourself the ability to sleep at night.
Fixed-rate loans are also particularly suited to people with a job that may not be sufficiently stable or for workers with temporary or part-time employment. They need the certainty of a fixed-rate loan with unchanging repayments.
It is challenging for an investor to attempt to predict which way interest rates will jump and make decisions around whether to fix or not to fix based on this. Right now there is a consensus that we are nearing the top of the current interest rate cycle although many commentators suggest that rates will nevertheless remain high for at least another two years. The case for fixing is thus mitigated if one accepts this argument. If however you need certainty or are of the view that inflationary pressures will continue to put pressure on rates then the case remains for fixing at least part of their exposure to rising interest rates.
Filed Under: Property Investment
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