Every time a fixed rate comes up for renewal, the same question lands in my inbox. How long should I fix for?
And almost every time, the person asking has already been down a rabbit hole. They have read a headline about where rates are heading, or they have had a conversation in the lunch room, or their neighbour has told them what they did and it sounded confident. So they arrive wanting me to confirm a prediction.
Here's the reality. Nobody knows where interest rates are going. Not me, not the bank economists, and on the evidence of the last few years, not the Reserve Bank either. They will all give you a view, and those views are worth reading, but they get revised constantly and they are frequently wrong. If your decision only works when the forecast is right, it's not a great decision to start with.
The good news is that you do not need to know where rates are going to make a sensible call. There is a better way to think about it, and it starts with you rather than with the market.
Start with what is changing in your life
This is the first question I ask, and it is the one that most often changes the answer.
Fixing your rate is a commitment. If you break that commitment early, there is usually a cost, and depending on the size of your loan and how much of the term is left, that cost can be a lot. So before we talk about rates at all, I want to know what your next couple of years look like.
Are you thinking about selling? Planning renovations that might need a top up? Looking at buying out a partner, a sibling or a parent? Is there a baby coming, or a career change, or a move overseas on the cards? Are you hoping to buy an investment property, or help a kid into their first home?
None of those things automatically means you should fix short. But each of them is a reason to keep some flexibility, because a shorter term gives you a natural decision point rather than a break fee.
I had a client last year who was weighing up a one year rate against something longer. On rates alone it was a close call. Then she mentioned, almost in passing, that they were planning to borrow a bit more to repay her parents for an extension and re-roof the house. That changed things. Fixing for twelve months meant that when they were ready to restructure, the door was open rather than shut. She still made the call herself, but she made it with the full picture in front of her.
If genuinely nothing is changing, that is useful information too. It means the option for flexibility isn't as important, and we can spend more time on the next question.
Then work out how much certainty is worth to you
This one is less about numbers and more about how you are wired, and there is no correct answer.
Some people want to know exactly what is leaving their account for as long as possible. They have a tight budget, or young kids, or a business with lumpy income, and a payment that could jump in twelve months is a source of genuine stress. For them, paying slightly more for a longer term can be money well spent, because what they are buying is not just a rate, it is a couple of years of not thinking about it.
Other people are comfortable riding it out. They have room in the budget, they would rather take the lower number now and deal with whatever comes later, and a repayment increase would be an annoyance rather than a problem.
Neither of those people is being smart or dumb. They just have different tolerances, and the right term for one of them is the wrong term for the other. When we talk this through, I am mostly trying to get a read on which camp you sit in, and often people are somewhere in the middle, which brings us to the next bit.
Splitting: the compromise that gets underused
You do not have to put the whole loan on one fixed term.
Splitting across terms is the answer for two situations I see often. The first is where you want to smooth out the risk of your repayments jumping all at once. If your whole loan comes off on the same day and rates have moved against you, the full increase hits in one go. If it is split across different terms, only part of it changes rates at a time, and the change is gentler.
The second is where you are torn between two options. You like the look of the shorter rate, but you want the certainty of the longer one, and you keep going back and forth. Splitting lets you have some of each rather than agonising over an all or nothing call. It is not a fence-sit, it is a legitimate way to hold two things you value at the same time.
Splitting is not free of downsides. It means more moving parts and more dates to keep track of, which is something we manage for you anyway. It also means that in a market where rates are dropping, you don't get the benefit of that drop immediately across your whole loan. But it is a real option and it deserves to be on the table when it suits.
One thing worth doing when rates drop
If your new rate is lower than your old one, your required minimum repayment will drop too. You do not have to take it.
Keeping your repayments at the old level means the extra goes straight onto the principal. Over a full term that adds up in a way most people underestimate, and it also builds a buffer, because if rates rise later you have already been comfortably paying more than the minimum.
Here is a rough example of what that looks like. Say you have $500,000 left on your loan with 25 years to run, and at your refix the rate comes down by around three quarters of a percent. Your required repayment would drop by roughly $240 a month, which is real money and there is nothing wrong with taking it if you need it.
But if you left the repayment where it was and let that $240 keep going out, you would pay the loan off close to three and a half years earlier and save somewhere in the region of $67,000 in interest along the way. Same repayment you were already comfortably making, no change to your budget, and a materially different finish line.
Those figures are only an example to show the shape of it. Your own numbers will depend on your balance, your term, and where your rate actually lands, and any of the My Mortgage team would be happy to run the real ones for you.
It costs you nothing to ask for it and it is one of the easiest wins available. Plenty of clients do exactly this and are quietly well ahead as a result.
What to do when your renewal comes around
We will be in touch with our clients roughly sixty days before your fixed rate expires, so you do not need to keep track of it.
When you hear from us, the most useful thing you can do is tell us what is going on in your world, not just what you think about rates. What is changing, what you are planning, what would keep you up at night if your repayment went up. That is the information that actually shapes the advice.
And one small practical note. If your expiry is still a few weeks away, there is often no need to rush the decision. Things move, and a bit of patience sometimes pays.
If your rate is coming up and you would rather talk it through than read about it, get in touch. That is what we are here for.
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