Mortgage Now

Fixed or Variable.. What should you do?

The word on the street is that the Reserve Bank will raise Australian Interest Rates by ½ of one percent before Christmas this year.

A lot of people may be thinking that now is the time to fix… before it goes up too much. And I agree that it makes sense on the surface of it… Until you dig a little deeper.

If you have a look, you may notice that fixed rates are as much as 2 full percentage points higher that variable rates.

The 2% difference will cost you an additional $583 per month on a $350,000 home loan or $166 per month on every $100,000 (of Mortgage you have).

So, what to do?

Here’s something to think about..

If interest rates go up at ¼ of a percent every 3 month, then in 2 years, the variable interest rates will catch up to the current fixed rates.  What will it have cost or saved you?

I have done up a table showing the differences between the variable rates with the rate rise every 3 months starting in December.  The difference is more than $7000 over the 2 years or an average of an additional $328 each and every month for the next 2 years…

(No one knows when the rates are going to go up and the table below is for illustration purposes only)

Date Period Loan Size Rate Rises Increased Payments Fixed Rate Difference Increased Payments
Sep-09 350000 0%  $              2%  $     583.33
Oct-09 350000 0%  $              2%  $     583.33
Nov-09 350000 0%  $              2%  $     583.33
Dec-09 350000 0.25%  $      72.92 2%  $     583.33
Jan-10 350000 0.25%  $      72.92 2%  $     583.33
Feb-10 350000 0.25%  $      72.92 2%  $     583.33
Mar-10 350000 0.50%  $     145.83 2%  $     583.33
Apr-10 350000 0.50%  $     145.83 2%  $     583.33
May-10 350000 0.50%  $     145.83 2%  $     583.33
Jun-10 350000 0.75%  $     218.75 2%  $     583.33
Jul-10 350000 0.75%  $     218.75 2%  $     583.33
Aug-10 350000 0.75%  $     218.75 2%  $     583.33
Sep-10 350000 1.00%  $     291.67 2%  $     583.33
Oct-10 350000 1.00%  $     291.67 2%  $     583.33
Nov-10 350000 1.00%  $     291.67 2%  $     583.33
Dec-10 350000 1.25%  $     364.58 2%  $     583.33
Jan-11 350000 1.25%  $     364.58 2%  $     583.33
Feb-11 350000 1.25%  $     364.58 2%  $     583.33
Mar-11 350000 1.50%  $     437.50 2%  $     583.33
Apr-11 350000 1.50%  $     437.50 2%  $     583.33
May-11 350000 1.50%  $     437.50 2%  $     583.33
Jun-11 350000 1.75%  $     510.42 2%  $     583.33
Jul-11 350000 1.75%  $     510.42 2%  $     583.33
Aug-11 350000 1.75%  $     510.42 2%  $     583.33
Sep-11 350000 2.00%  $     583.33 2%  $     583.33
Total  $  6,708.33    $14,583.33

 

If you keep this going to see the fixed Rate ‘V’ Variable Rate break even point, you will see that it is December 2013 before the extra you are paying on a fixed rate home loan actually catches up…

Now, I like to think I know my market (and I do) but who knows what the Government will do? Do you?

I know that I personally will be staying on a variable rate with my home loan.

Keep in mind also, that if you want to sell your home or refinance it (while still in the fixed term mortgage), you will have an awful experience when you want to ‘break’ the fixed rate term agreement and it could cost you $thousands in break fees.

Please give it some serious thought before you decide to ‘fix’ your home loan.

If you would like to discuss your mortgage, Please call me (or my team) on 1300 667 239 for a free no obligation chat.

Until next time, continue to enjoy…..

…..Good Things

 

Graham Doessel can be contacted at Mortgage Now, 246 Stafford Road, Stafford, Qld.  4053 | Telephone 1300 667 239 | www.mortgagenow.com.au | info@mortgagenow.com.au

Mortgage Now is Australias largest exclusivly nonconforming mortgage broker and has been placed as a finalist in the Australian Mortgage Awards Best Broker of The Year (nonconforming) for 2008 and again in 2009.  In 2006 Mortgage Now was placed as a finalist in the Telstra Business of the Year Awards.

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