To fix or not to fix: Is that the question?

02nd May, 2016 | First Home Buyer, Investor, Loan Features, Refinance

In this article:
Is the Australian property market a comedy or a tragedy?

Is the Australian property market a comedy or a tragedy? If you’ve been weighing up your home loan and real estate options, it might seem like a bit of both. Who doesn’t feel like laughing and crying at the same time when CoreLogic’s median house value for Sydney sits at nearly a million dollars?

Is the Australian property market a comedy or a tragedy?

But for many people, they simply have to soldier on. Like a Shakespearean hero overcoming the odds to fulfil their property prophecy, buying real estate is something they have a resolve to make happen. Which then leads us to one of the most important follow-up questions – what do you do with your home loan interest rate?

Mr Fix-It

Think a fixed rate home loan is going to work for your financial planning? It’s a bit like the Globe Theatre, in that it stands strong for the long term. Fixing your interest rate gives you stability with your repayments, guaranteeing you’ll pay a certain amount for a few years. Of course, you won’t be able to fix the rate for the full loan term, but generally you can do it for three to five years.

And if The Tempest strikes and interest rates rise, you can rest easy knowing the steady ship that is your fixed rate mortgage will weather the storm. Of course, this is a double-edged sword. If interest rates decrease while you’re locked in, you could be missing out on great savings and investments.

When you fix your repayments, you might also be unable to put extra into your loan – frustrating if you get that raise you’re after.

Considering the variables

And on the other side of the coin, a variable rate home loan gives you the freedom you’ve been craving. Variable rates will often sit a little lower than the fixed rate that is offered at any given time, but you’re running the risk of rate increases hitting you in the pocket.

Of course, the benefit here is you will be in an advantageous situation should rates fall while you have a variable mortgage. You might also have the freedom to make extra repayments, which can be great for chipping away at both your outstanding debt and the ongoing interest.

But which is the better option?

With interest rates rising and falling over the years, it’s nigh-impossible to say with certainty whether a fixed or variable rate is going to be the “best” option. That’s because everyone has different levels of income, different property goals and will require different levels of financial advice.

If you can handle the risk, you may want to keep with a variable rate, as some commentators think the Reserve Bank of Australia’s (RBA) cash rate is still going to go down over 2016. On the other hand, considering there hasn’t been a single RBA rate increase between the end of 2010 and the start of 2016, you may feel we’re overdue for one.

Have your cake and eat it

There is nothing good or bad – but thinking makes it so!

Perhaps you’re feeling a bit like Macbeth, and want to truly have it all? Then a split loan could be the answer. This method of taking out a mortgage actually undermines our article’s title a bit, as it means you can fix some of your home loan, while leaving the rest with a variable rate.

So, back to the initial question: Is the property market a comedy or a tragedy? We say it is what you make of it – provided you have the right help. At Yellow Brick Road, we help everyday Australians get ahead, even in difficult environments. Fixing or going variable is just one step on the path. To pick another line from Hamlet, there is nothing good or bad – but thinking makes it so!