Ask an Adviser: Should I fix my home loan rate?

With the Reserve Bank of Australia increasing interest rates in May 2022 for the first time in a decade, many mortgage holders are considering whether to move to a fixed rate. We asked Apt Wealth Home Loans Mortgage Broker Matthew Baker to weigh in.

Matthew Baker: With the interest rate rise this month, a number of Apt clients are asking whether it’s time to move to a fixed-rate loan to lock in their rate before any more rises occur. The answer is not necessarily.

Fixing your rate gives you certainty over your repayment amount for a set period, which can seem attractive with today’s economic uncertainties. However, there are two broad questions to consider before making any moves.

Firstly, could it end up costing me more? The answer may well be yes. Many of us get caught up focusing on the rate alone, but there are two figures to consider: the rate and the amount you owe.

According to Canstar, the average variable rate on 6 May 2022 was 2.98%, and the fixed-rate average was from 3.17% for one year up to 4.78% for five years.

Even with the anticipated rate rises, it’s likely to take at least 12 to 24 months for the variable rate to catch up, and by then you should have decreased your loan amount, so your repayments will reduce anyway.

In essence, by moving to a fixed rate today, you aren’t guaranteeing any future savings, but you are locking in higher repayments. On the other hand, staying with a variable rate will likely give you more time before a significant jump in repayments to review your cash flow and plan for higher costs.

Secondly, does a fixed-rate loan give me the flexibility I need? Like most financial decisions, this depends on your lifestyle and circumstances. It is important to note that fixed-rate loans usually offer far less flexibility than their variable counterparts.

A fixed-rate loan locks you into a set rate for up to five years, which won’t suit everyone. It can become a problem if you need to sell in that time or you wish to make a lump-sum payment, as there may be a financial penalty.

You might think there is no chance you’ll sell or have a lump sum at hand, so this doesn’t apply to you. But you don’t know what is around the corner. You may receive an inheritance and want to pay off your mortgage, for example, or an unexpected relationship change may lead to a sale.

So, should you move to a fixed rate? The answer isn’t cut and dried. As with any financial decision, it boils down to your circumstances and goals. Reach out to an Apt Adviser to get personalised advice that allows you to live for today while planning for tomorrow, whatever interest rates do.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.