It is tempting to leave all borrowings on floating, waiting for the “low point”. However, that point may be very hard to pick with so many variables. Our rates are also dependent on overseas events and no one, including the economists can accurately predict the events that could happen.
Rather than try and predict the bottom of the fixed interest cycle, it would be safer to fix some and float some.
It is possible to split your mortgage into several fixed rate terms so that not all the borrowings come off fixed at the same time.
Perhaps floating half or a third and fixing the rest.
The advertised fixed rates are just an indication at the moment since we are currently negotiating discounts. However, the discounting that is happening at the moment, won’t last forever. Banks are competing to gain new customers or retain them but as rates firm up the discounting will stop. When that happens no one knows but we are in an unusual situation.
There is the option to fix for 1 or 2 years, which are really good rates.However, at the end of that fixed term, the question to ask is what the rates might be at that time. It may be a better option to fix some for a longer term to hedge your bets.
No one is expecting an interest rate spike but then again, no one expected the rates to stay this low for this length of time. Historically 7.4% is a great rate and at this time even the 5 year rates are less than that. I am not suggesting fixing everything for 5 years although 1f you can get a rate around 6% for 5 years then surely that wouldn’t be too shabby.
Remember also that in the last cycle, when clients fixed at 9.5% for 5 years (since they were worried about rates hitting double digits), they had hefty break fees to come out of those fixed terms. This time it will be different. If a client were to fix for a longer term and circumstances changed and they needed to break their fixed rate term then the chances of break fees would be less since rates are more likely to go up than too much further down.
Banks are in the business to make money, so just like the borrowers taking a punt on when to fix, the banks also need to look at their numbers to make sure they don’t make a loss. I think it is safe to assume that the banks expect rates to stay reasonable stable for the next year or so, at this stage anyway, because of the rates being offered. However, that can change at any time.
It pays not to put all your eggs in one basket and perhaps look at splitting existing loans into various fixed terms along with keeping a proportion on floating
