⟵ Back to articles

Is A Fixed Interest Rate Right For Me?

For the first time in 13 years I’ve just fixed one of my own loans. There was a window of opportunity in late 2008 when I scrambled to advise my Platinum Members when rates dropped very briefly to 4.99%.

Those who followed my advice have saved a fortune, locking in just $500K would have save you $11,000 pa on today’s pro pack rates, that’s the value of being a Platinum Member!

It is unusual for fixed rates to be lower than the variable rate, but this is one of those usual times when both 3 and 5 year fixed rates have dropped well below the prevailing variable rate with some as low as 6.29% for a 3 year term and 6.39% for 5 years although most are around 6.69%, that's up to 1.5% lower for the 3 year term, rare times indeed.

What is the up side to fixing your rate?

  1. The 3 year rate is about 0.8% below most prevailing pro pack rates, that’s a saving of about $4000 pa on a $500,000 loan or about $2,000 pa on the 5 year term
  2. You have rate certainty that your interest costs won’t increase over the term
  3. Provided you have the equity you can still apply for additional funds

What is the down side?

  1. You lose flexibility as you are locked into that lender for the term of the loan
  2. The loan must be fully drawn so you lose any available credit you may have on the loans to be fixed
  3. If rates fall you are locked in at that rate
  4. If you exit the loan before the end of the term and rates have dropped you may face penalty fees

What to consider:

  1. As most, but not all lenders, limit the amount fixed loans can be reduced or offset you need to consider how much you can pay down/off over the term from your cashflow, an inheritance etc
  2. To save interest over the term of the fixed period the average variable rate needs to be higher than the fixed rate for more than half the fixed term
  3. The experts advise people to lock in closer to the lower end of the cycle range, not the high end
  4. If you have any plans to sell the property within the fixed term, be wary of locking in
  5. That your circumstances won’t substantially change within the term
  6. How much of your lending you should lock in and the term of the fixed period, for example you should not lock in a transactional loan account such as your 'Expense Account'
  7. Typically deductible loans should be locked in before non-deductible so you can pay your N/D loans down first

I can’t recommend or advise you to fix or not to fix, not even RBA chief Glen Stephens knows where rates are headed over the next 3 to 5 years because there are so many factors that affect rate movements, however, I feel a sense of responsibility that if I’m fixing some of my own loans for the first time in many year I should raise the issue with you so you can make your own informed decision

What to do if you do decide to fix:

If, after considering all the circumstances, it is best to stay with your existing lender the process usually should be quite straightforward requiring only a “switching” form. Give us a call and we will advise you accordingly.

If you want to switch to a lender (eg for a better rate) then you will need to call us today on 03 8621 8484 and we will make the arrangements