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Our thoughts on if to fix or float - Fix for a year

At the risk of oversimplifying things... I believe the best thing you can be doing right now is to fix your home loan for 12 months.

ANZ came out last week saying they saw another at least two or maybe even three drops in the OCR down to as low as .25%.  What this means is that the interest rates the banks offer could drop further in the next 12 months.

The 12 month is already the cheapest rate available (as I write this we're getting deals around 3.5% with most main banks).  So let's look at the reasons why not?

Take the two year rate, it gives more certainty

I'm all for a conservative approach to fixed interest terms but two years doesn't make sense at the moment if the cost is the same and the rates will almost certainly be lower in 12 months time.  You might as well fix shorter for now and if we're near the bottom of the interest rate curve in 12 months time then that could be a great time to look at 3-5 year fixed options and get some real certainty.

Why not float and wait for the rates to drop?

The numbers simply don't work on this.  Let's say we got a .25% drop in rates in 3 months time.  The current average floating rate with main banks is around 5%.  

So if you've got $100K you can fix for 1 year and it will cost about $3500.  
But if you floated for 3 months you'd pay $1250 for the next 3 months then $2,440 for remaining 9 months.  This is just under $3700 in total.  

What if rates didn't drop for 4 months?  It would cost even more and you'd be in trouble.  So you're better to fix now then to float if that's the option.

​What about fixing six months?

The logic on this is good. Fix six months instead of 12 and get those cheaper rates sooner.  If only the 6 month rate was a good rate... The current 6 month rate average for main banks is 4.29%.So let's say you fixed 6 months at 4.29% and then got 3.25% after that... your average for that year would be 3.77%

Still better off with 12 months fixed!

So how do you get the best 12 month rate, with your current bank, and get it locked in with a minimum of hassle over a couple of emails? Simply click this link and get in touch with us.  We'll give you personalised advice to make sure this is right for you and take care of re-fixing your lending free of charge. Like any rule there are a bunch of exceptions.  

For example if you absolutely cannot risk a change in payments in 12 months time (having a baby, starting a business etc) or if the thought of not having your mortgage locked for a long time keeps you up at night.  

That's why you can chat with Adam or Claire to get the right advice tailored to you.We look forward to talking soon

Adam and the My Mortgage Team


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