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To fix or not to fix?As interest rates increase, the question most mortgage holders ask themselves is - "when is it time to fix all or part of our home loan?" For most people, it's the $64,000 question! Before you act, carefully consider both sides - the advantages and disadvantages. The obvious advantage is that when you fix, repayments will not increase with rising interest rates so you know in advance what your repayments will be for a fixed period, and you can usually choose one to five years. This can be helpful if funds are tight. But what are the disadvantages? In most cases, when you fix the rate it is generally higher than the standard variable rate and sometimes set-up fees are charged. Alternatively, if you do take the fixed option and then break the loan before the set period has expired, you will usually be hit with penalties. Many borrowers will automatically think it's best to pay a bit extra and tie in to a fixed rate than gamble with potential rate increases. But you should never just compare the fixed rate to the variable rate... it's the average of the variable rates over the coming three years that is your best indicator. Unfortunately, nobody will know what the variable rates will be over any lengthy timeframe, but to give you an indication based on past results, there have only been three periods since 1990 when fixing for longer than two years has been a positive move. This occurred in 1993/94, in 1998 and in the second half of 2001 (following September 11). So if you're thinking of changing to a fixed rate, think carefully and do the sums. Life is about choices and nobody should make this decision for you. The only suggestion we make is to keep paying your mortgage off regularly and making additional payments when you can afford to. For more information contact Glenn, Jennifer or Deb at Baker Affleck Financial Solutions.
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