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Fixing your mortgage now: the case for and against
April 7, 2011
With every finance expert offering an opinion on whether or not interest rates are set to soar, we look at both sides of the argument.
For: Even though the Reserve Bank held off on another rate rise last week, inflation is reaching levels which mean a rate rise is guaranteed in the near future. Even if rates remain steady in the short term, the bigger picture, not to mention the cyclical nature of interest rates, points to an inevitable rise later this year or early next as the housing bubble bursts.
Fixing your mortgage now will protect you from taking a hit when it happens and will also give you the peace of mind of knowing exactly what your repayments are each month.
Current fixed rates: between 0.72 percent below and 1.02 percent above variable rate mortgages.
Against: Entering into a fixed rate agreement may cost you the flexibility of extra repayments. If interest rates remain stable, as they have done largely since November, you can shave a chunk off your mortgage by making as many extra repayments as possible over the next few months.
Competition in the lending market is fierce and there is currently a bidding war for your business which could allow to you to snap up a great deal on a variable rate.
Plus, fixed rates become higher the longer you wish to fix your loan.
On the fence: If you can’t stand to miss out on the current interest rate savings but also fear the unknown, a split-loan is probably best. Your loan is split 50/50 (or sometimes 60/40) with one part on a fixed rate and the other attracting a variable rate.
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