With extraordinary new lows not seen in over thirty years, is now the time to fix your interest rate? If you want to save in the long term – the answer is yes.
Interest rates are market prices, which means they are a function of what is essentially supply and demand. There are both short term and long term factors that have driven interest rates lower on a global scale, all of which have in one way or another affected us here at home.
Why Are The Interest Rates So Low In Australia?
In Australia, one of the shorter term domestic factors is weak consumption growth, which has largely been driven by very weak wages growth – translating as consumers who are burdened by very high levels of household debt, and people are reluctant to spend as they once might have done.
Even before the arrival of Covid-19, our economy was already showing signs of slowing down. Over the past year and for a variety of reasons, economic growth in Australia has slumped. Exacerbated by the knock on effect of the pandemic, other contributing factors include ongoing trade wars, heightened political uncertainty in a number of countries and an insufficient amount of manufacturing activity.
As a result, the Reserve Bank Of Australia has continued to drop interest rates to record lows in an effort to keep our economy moving. With the big banks passing on these cuts to consumers, some fixed home loan rates now sit at below 2% – so is now the time to fix your interest rate?
What Is A Fixed Interest Rate?
Choosing a fixed or variable interest rate for your home loan often comes down to how familiar you are with the interest rate cycle (or not). With the world feeling slightly more daunting than usual – particularly if it’s your first big foray into a large scale loan – you should be paying extra attention to your financial commitments, and ensuring that you’re taking advantage of these record low interest rates.
When compared to a variable interest rate, or one that fluctuates along with global economies, fixed term interest rates can provide stability, certainty and security. In the past, many people have shied away from them and have taken the gamble of tying their mortgage repayments to a rate that could go up or down.
The main benefit of a fixed rate home loan is that it gives you the certainty of knowing that your repayments won’t change over the fixed interest period, which is usually between one and five years. This way, you also know exactly what you’ll need to spend each month and can budget confidently. Should the interest rates rise, having a fixed rate loan means you won’t have to pay more – at least until your fixed term expires. This can make it a good choice if you think interest rates may be about to increase, or you’re concerned about making repayments if your interest rate does rise.
Is There Another Way To Fix Your Interest Rate?
Madd Loans owner George Samios believes that split loans offer the best of both worlds in the realm of interest rates.
“There are pros and cons to fixed and variable loans, and that’s why we normally do offer a split loan option to our customers. My clients actually have both the offset account and redraw ability that comes with a variable loan, but they also have the security of a fixed loan.”
Although there are no limits with how much consumers wish to allocate to each portion of the split loan – for example 60% fixed, 40% variable, etc – what you are essentially doing is distributing interest rate movements, as well as the relevant risks that may apply or be associated with each feature. It’s always worth talking to your broker to discuss in depth which option is the best fit for your individual circumstances.
Want To Keep Talking Interest Rates?
Whether you’re an existing Madd Loans customer or not, when it comes to the world of interest rates George believes that every consumer should have access to a good deal.
“Ultimately we are here to look after our customers – not the bank. We save our clients thousands of dollars every year by doing the leg work, and we can happily help people to renegotiate their current interest rate at no charge.”
If you think you might be paying too much or even just want a professional opinion, make an appointment today with the team at Madd Loans to see how we can get lower interest rates for you and your loan.