Fixed rates below 2% - should I fix?
To say that a fixed rate below 2% is enticing is an understatement. With interest rates at such a low level, many people are diving in chasing these low rates.
But is there a catch?
It is important to understand what a fixed rate means and what come with it. For many young first home buyers, having absolute certainty about their repayments, for a period of time, gives them peace of mind when adjusting to a new life as a home owner.
A fixed rate means that for your chosen period of time, your repayments remain the same, regardless of anything else that is going on with rates. If you are quite sensitive to any movements in your repayments, a fixed rate might sound very appealing.
So should you fix below 2%? Great question. It depends. Let me explain. Fixed rate loans are inherently inflexible. There are restrictions with regards to extra repayments, often inability to redraw and expensive fees to exit of a fixed rate before your fixed term is up. Most banks do not allow an offset account against a fixed rate which means many clients miss out on interest savings that can come every month with an offset.
So the answer is that it really depends on your situation. Your mortgage broker's job is to work out with you whether you are actually suited to a fixed rate. It is one thing to have a low interest rate. But it is another thing altogether if it does not match how you manage your money. You might have a win on a low rate but miss out on 3 years of saving interest without an offset account under a 3 Year Fixed rate loan.
The best thing that you can do when you see a really low rate is to ask the question. What should I do? By asking that question of your broker, you are always going to end up in a better place than you are now.