Time to Fix Your Mortgage?

Graeme Salt

"On present indications, the most prudent course is likely to be a period of stability in interest rates.” - Reserve Bank of Australia 4 February 2014


The Autumn property season has now started and most of my clients are asking two questions:

  1. Will property experience the same growth as last year?
  2. What will happen with interest rates?


Before Christmas I gave a detailed analysis of my thoughts on capital city property. Now, I will summarise where the experts think interest rates will go.


Pretty much every economist expected the Reserve Bank to hold interest rates steady last week. However, when the Reserve announced “the most prudent course is likely to be a period of stability in interest rates”, everyone understood that there will be little change for quite some time to come.


So, you have a fairly long period of stability, but what next? Here expert opinion is divided, some say there will be further rises at the end of the year, others expect additional interest rate cuts. Where everyone agrees though is that, either way, further changes will not be huge and that we are pretty close to the bottom of the interest rate cycle. So, what do you do?


The bulk of Australians have variable loans that mean that they will have to take the 0.25 per cent interest rate cut or increase when they do eventually come. But, many others are looking at fixing their interest rates.


The drivers of fixed and variable rates are completely different. While variable rates are primarily driven by what the Reserve Bank of Australia determines, fixed rates are driven by the global money markets. Here, most commentators expect fixed rates to start rising this year because the global economy is strengthening.


Some people are happy to take the ebb and flow of variable interest rates, others like the certainty of fixed rates. Of the latter, many are now choosing to lock-in these ultra-low rates while they can; it’s hard to imagine them coming around again in our lifetime.


For a no-obligations consultation about your home loan, please contact Graeme on 02 9922 5055