Finance on Tap
Terry “Tappa” Teece
Fraser Financial Services
WHEN ARE INTEREST RATES GOING BACK UP AGAIN AND IS IT TIME TO FIX MY RATE?
Well last week once again the reserve bank has left the cash rate on hold. But when will it be on the rise again?
This week the Reserve Bank of Australia Governor’s statement, Glenn Stevens again described the Australian currency as “high by historical standards”. He also added; “The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months,” he lamented.
The experts are even confused. There is considerable disagreement emerging amongst analysts about the medium-term outlook for rates, with some economists forecasting rate rises later this year, some expecting the first increase sometime next year, and a shrinking handful still predicting one more rate cut.
“Interest rates are very low and savers continue to look for higher returns in response to low rates on safe instruments,” Mr Stevens observed. “Credit growth is slowly picking up. Dwelling prices have increased significantly over the past year.”
What does that mean for everyone out there in credit land? Should you fix your home loan? Well we know that interest rates are at historical lows, and the number of pundit predicting a rate cut are reducing as the year unfolds. Can rates go much lower? Would lenders pass on any rate cuts?
I have no crystal ball but I know that a couple of years ago, if I offered you a five year fixed rate at just over 5% you would have jumped all over it, and people would have been lining up at the door. You then also have the security of knowing what you payments will be for the entire fixed period of the loan. When you get a fixed rate loan, you must realize that you have a deal for the period that the loan is fixed, and breaking that could lead to penalties, particularly if interest rates have dropped since the loan was taken out. Also with most fixed rate loans there is a maximum amount extra you can pay off the principal before penalties are applied. Most fixed loans do not have an offset account, but I do have some lenders on my books which do!
I believe that if you are thinking of fixing your loan look at these 3 things:-
1/ Look at what you want and only fix the loan for the period you believe you will not be changing anything in your life – for most people this is 2-3 years. Having kids, upsizing, downsizing, kids leaving home etc etc… All of these can change your life and what you need from a loan.
2/ Look at how much extra you would, or can pay off your home loan in the fixed period. If you think you could pay-off much more than what is allowed by the lender, you may be best to look at other lenders policies, or stay with a variable loan.
3/ Look at splitting your loans. You can do part variable part fixed. Think “How much would I be able to pay off in the 3 year fixed period?” Then make that amount or maybe a bit more your variable part of your loan and pay as much of that off as you can during the fixed period with no penalty!
Realise that once you are in a fixed loan, you are in it for that fixed period. Get your mind set on it, plan to pay off as much of the allowable extra you can.
At Fraser Financial Services, we have the products from every lender to be able to look after your financial needs, for home, car, truck, commercial, or equipment finance. Most of all we are locals, we live in the community and are part of it, and we look after our own.
Call me on 07 55 766 299 or 0400 853 035
Email – firstname.lastname@example.org
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