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22 August 2009

"Stick to variable interest rate to save money"

An interesting article on Fixed v Variable rates from today's Courier Mail:

IT'S too late now to fix your home loan - you should have done it six months ago in the depths of the economic gloom.

But the good news is that new research from RateCity proves that sticking to a variable rate for the next five years could save mortgagors thousands of dollars.

"Taking a fixed rate at 7.25 per cent today is like buying two car insurance policies for the same car," said Damian Smith, chief executive of RateCity.

"Fixed-rate options have factored in market expectations so if you're buying extra protection that the market is not expecting, why would you fix?" The market is expecting interest rates to rise by up to 2 percentage points gradually during the next five years.

If this occurs, the average standard variable interest rate would rise from the present 5.25 per cent to 7.25 per cent.

"Six months ago when the world was coming to an end was the time to fix," Smith said. "The economy has performed much better than anyone thought and in the past two to three weeks we've seen the average five-year fixed rate go to 7.25 per cent.

"The average of the big four banks' five-year fixed rate is 7.59 per cent, so the horse has bolted. We suggest a simple rule of thumb. If your present variable rate is within 1 percentage point of the present fixed-rate average of 7.5 per cent, then it is a pretty simple decision to fix.

"But if your variable rate is about 5.25 per cent, then that's 2.25 points away from the current average fixed rate, so it doesn't make sense to fix." more>>
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Yours in property!

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