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Is it too late to switch to a fixed rate home loan?

Is it too late to switch to a fixed rate home loan?

Andrea Sophocleous investigates when is the best time to fix your home loan.

December 1, 2009

Interest rates have begun their upward climb, sending a collective frown across the foreheads of Australians with a home loan. The question of fixing your home loan’s interest rate or taking a punt with a variable rate is no doubt rearing its head with increasing frequency. In fact, this is a question that regularly troubles home owners. Unfortunately, there is so straightforward answer.

Sometimes you can get lucky, like Lilanee Jayasandara did. In May, Lilanee, an investment banker, opted to switch to a three-year fixed rate on two-thirds of her Westpac mortgage, and a one-year fixed rate on the remaining one third at the favourable rate of 5.49 percent p.a. She has cushioned herself against the rising rates, while allowing for some flexibility.

“I looked at my personal situation and felt that in 12 months, I would want to pay off a certain proportion of my mortgage,” Jayasandara says. “So I locked in one third of my loan for only one year as I intend to pay off that portion by the end of the year.”

Switching to a fixed interest rate on all or part of your mortgage is an attractive option if you plan your budget on long-term scenarios. “Fixing your interest rate does help with budgeting,” Jayasandara says. “You know that in three or five years you will still be paying the same amount.

“Of course, when you compare fixed and variable rates, it really depends on where you think variable rates will be in three or five or 10 years’ time.”

The best time to have fixed your mortgage interest rate in the past year was in April 2009, when the benchmark three-year fixed rate across the big four banks –  Commonwealth Bank, Westpac, ANZ and National Australia – was 5.66 percent p.a. That same month, the average standard variable rate was 5.18 percent. Soon after, fixed rates began climbing steadily while variable rates remained low.

Clearly choosing when to fix your interest rate is all about timing. Whatever you decide, research and careful planning is the best way to ensure you come out on top.

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