Thinking of fixing your home loan interest rate?
28/01/2012 
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Fix your mortgage rate or wait and see?
With most mortgage interest rate crystal gazers, Mr Mortgage included, expecting the RBA to increase the cash rate by 0.5% this this year, it might be tempting to think about fixed interest rate.
The two things against this are that we have seen base rates rise by nearly 2% since the GFC, and that was the time to fix. The other reason this might be a bad idea is that the RBA talks about rate rises a lot more than it actually raises the cash rate.
The motives for raising interest rates are skimpy.
- Are miners are going gang busters right now, but that rests on China not slowing down. Were that to happen Australia is in big trouble.
- Retailing actually got a boost in trade last month. but that hardly makes a compelling reason to raise rates. Retailers have been doing it tough over the last 6 month months.
- Carbon tax is looming on the horizon. What this will mean to spending patterns is anybodies guess.
The Security and certainty of a fixed mortgage rate
I realise that the “security” of a fixed interest rate may seem attractive in these uncertain times, but isn’t that precisely the reason why you should stay uncommitted?
New mortgage rules make lending harder
From January this year getting a home loan got harder. Lenders are worried. Can they lender to older home buyers.
Will house prices continue to soften?
Could you reset your loan to a fixed rate if you wanted to?
In fact some people are predicting the end of lo-doc home loan lending, at least from mainstream lenders. We can still refer people to non bank lenders who sill set low doc mortgage loans, but these are also lending under the same regulations.
So if I were you in this market I would keep with your variable hone loan as is.The RBA has stated that we are at the “normal” rates now on a historical basis. I can’t see rates going higher on the basis of trends in house prices, and new home building approvals falling across Australia.
Rick Adlam has been helping clients with home loan finance since 1985 when he was home consultant with AV Jennings. Rick started Equity Home Loans in 1996 to help homeowners become property investors. Rick currently consults in the development of Mr Mortgage for mortgage brokers and HomeMate for new home buyers.
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