The Rate Debate

Is it time to lock in all or part of your mortgage?

With interest rates in Australia now at historic lows, there has probably never been a more ideal time to review your existing debts, the current interest rate you are paying and whether it is fixed or variable.
Since the most recent rate cut, the big banks have been competing for market share with all of them passing on the rate cut in full except for ANZ which went further than the 25 basis points and passed on to their customers a 0.27 percentage point cut.


It could now be seen as a bit of a "borrower's dilemma" regarding whether to lock in now or continue to hold back and see whether rates drop even further. The fact however, that the banks are cutting their fixed rates so aggressively supports the assumption that they are still pricing in further rate cuts.  Various short & medium term fixed rates on residential loans, for example, are currently under 5.00% p.a.


When should you consider locking in a rate?



The answer to this question will depend on your individual circumstances and the level of risk (if any) you are willing to expose yourself to. It is also important to consider and understand the implications involved with fixed and variable rates over time.


It is impossible to accurately forecast long term future interest rates however there are various sources of information which can indicate whether short term rates are likely to change.


If interest rates are falling, many borrowers will favour variable rates to take advantage of further decreases and increased flexibility, however as rates start to raise many prefer to "lock in" at the bottom of the market to give themselves certainty for a fixed period of time.


Often the best time to fix rates is when there is a widespread belief (mainly from media hype) that rates are likely to fall. Once the general belief is that rates are at the absolute bottom of the cycle, fixed rates are likely to have risen already in anticipation of future interest rate rises.

It is generally accepted that it is better to lock in a couple of months too early rather than a couple of months too late.


It should also be remembered that a fixed rate loan delivers less flexibility & can prove extremely costly if the loan had to be paid out during the fixed rate period due to an unforeseen contingency.

In the modern day and age that we live in, debt for many of us is a necessity for our lifestyle needs and to assist in the creation of long term wealth. Ensuring your debts are structured correctly to benefit from interest rate and taxation savings, where applicable, is considered essential for your financial circumstances in the current economic environment.


We recommend regular reviews of all debts and mortgages as debt consolidation may assist in lowering your current interest rate and achieving short term and long term financial goals.


To discuss your current loan structure and facilities feel free to contact Stuart Davey, Director of GCC Financial Solutions for an obligation free consultation on 02 9899 8377.