Thinking of fixing the rate on your loan?

Many of our clients are asking us ‘When are rates going to start rising again?’ or “When should we fix our loans?”  We don’t have a crystal ball, but here are some thoughts:

Fixed v Variable - whether you choose variable or fixed rate loans, it is a bit like having a bet

• Variable rate customers – are generally OK with riding the wave of the economic uncertainty.  When the economy heats up, they will experience the pain of variable rate increases.  But when it cools down, they enjoy a drop in the rates on their loans.
• Fixed rate customers - wish to have certainty over their level of repayments.  The risk taken here is that the economy significantly cools, rates head down and borrowers are stuck in a higher rate.   Unfortunately many of us with fixed rate loans are in this dilemma at the moment.

Where are interest rates heading? A lot of you will know that there is significant volatility in the financial system.  It is difficult to say with certainty:

• When will it all get better?
• How low will rates go?
• When will they start the long slow rise of a new cycle?

Anyone telling you the answers to these questions is guessing.  Some guesses may be based on wider information sources, but they are still estimates.  

The issue with perfect timing?  Picking interest rate movements is difficult. 

• Rates could continue to drop over the next 2 years
• Rates could rise and then drop
• Rates could remain relatively unchanged for a year or so

It is simply too hard to pick the time immediately before or after a long term fall or drop.  It is also too hard to pick how long rates will stay at certain levels.

How do I decide if the time is right to fix?  We recommend that you try not to get caught up with perfect timing.  It is simply too hard to achieve perfect timing and it mainly requires a fair amount of luck.  What you need to be comfortable with is:

• Whether you want to fix at all
• Whether you are comfortable with the fixed rate on offer at the time of your consideration

Vision can certainly assist you with your assessments to these questions.

Where Vision can assist

• Provide information - we will continue to provide information about what we hear is happening within our industry
• Answer your questions – if you have any questions relating to your particular situation, then please call us
• Assist roll out changes – if you do decide to fix, we will take you through the relevant steps involved