Fixed Or Variable Interest Rate, In These Uncertain Times?
At present, the Corona Virus has cast a lot of uncertainty over most peoples day to day lives. When will it end? How big will the economic fall out be? And more importantly, how will it affect my family and me? If COVID-19 has taught us anything to date, it is that one of the scariest things to deal with is a lack of control of our future. Our Toilet Paper Gate hoarding event is a good example of this, even though people were told there would be enough. The shop shelves were still being emptied, families could control how well they were provisioned for this crisis, and that helps us be a little less scared, I think. Not knowing how long the lockdown induced, economic famine will go on for, is a terrifying prospect for all of us.
One of the things that we can control to a degree is how our finance is structured, moving forward into this crisis. Making good decisions now may soften the economic blows we are all facing in the future. This is where I put the disclaimer in. This is a blog and my personal opinion. Its aim is to give you ideas and then hopefully explore them further by talking to an industry professional. Mortgage Brokers like Castle Mortgages are who to talk to, around debt structuring and scenarios. Your accountant or financial planner is who you should talk to when it comes to your financial well being. Your specific scenario is just that, and cannot be covered by an article.
So where was I, good decisions now rather than later. The reserve bank has cut rates to all-time lows and has stated they will go no lower. This remains to be seen, but let’s assume that is the case. The trend that I am seeing emerge from lenders is that most did not pass on the most recent rate cut, at all, a few did, partially.
What lenders are well focusing on is bringing out very competitive fixed interest rate deals that are a lot lower than the variable option in some cases. One has to ask, why are they doing that. Are they possibly seeing a race slowly to the bottom on margin for variable rates? I am not sure. Looking at the current environment, though, when uncertainty abounds. Fixing your rate at an all-time low may be a good decision. Knowing exactly what your monthly repayment will be for the next few years may help budget through this tough time. That these rates are the sharpest they have ever been, also gives a little comfort that you are running as tight a ship as you can.
Fixed rates may not suit if you are still trying to pay down your home loan as quickly as possible, pumping as much of your extra cash into the loan as you can. Fixed-rate loans normally have an annual cap, with regards to extra funds that you can put into the loan. After that, you will pay penalty fees for breaking the agreement. Staying variable or doing a variable /fixed split may be better here. If your future job prospects are strong and paying your loan down quickly was your goal, doing so while variable rates are super low, may get you well ahead of the game now. It all depends on what your current COVID-19 job situation is and how strong financially you are at present. I know I keep banging in about it, but now would be a good time to have a chat with your lender or broker and discuss your specific case.
If you are experiencing hardship and are not knowing what to do, there are options available to you. I would suggest, again, being on the front foot here and making contact with a Mortgage Broker Adelaide who can steer you to the appropriate contact at your lender or contacting your lender directly. You can read more about Corona Virus Bank Assistance here.