To fix or not to fix, that is the question in terms of rates

Wide Bay Australia business banking manager Emma Brenton shares her knowledge and wisdom with the Gladstone public.
Wide Bay Australia business banking manager Emma Brenton shares her knowledge and wisdom with the Gladstone public. Brenda Strong

LOCAL knowledge can make all the difference when it comes to financial and property-related issues.

Wide Bay Australia business banking manager Emma Brenton has over eight years experience in business lending.

This week, Ms Brenton discusses the unpredictability that is interest rates.

Here is her advice:

To fix or not to fix, that is the question.

Interest rates are currently at an all-time low and the demand for locking in rates has been increasing over the last few months.

The RBA benchmark rate is currently at an historical low of 2.5% and is a long way from the rate in January of 1990 when it was 17.5%.

Imagine having a business loan rate of 23% today!

But I have no crystal ball and can only present facts as they are today.

After all in July 2008 economists were tipping the Reserve Bank of Australia (RBA) benchmark was going to break through 8% towards the end of that year.

Then, a little thing called the Global Financial Crisis (GFC) hit which saw rates over a six month period plummet by 4.25%.

And yes a lot of people locked in rates based on the information at the time and missed out on some big interest savings.

However simple maths says we are not going to have a major plummet like the one had during the GFC, since the current RBA rate is 2.5% which doesn't have much room to go too much lower.

Before locking in you should also consider your circumstances and what your plans and goals are over the period you are considering locking in for.

Fixed rates generally have break costs involved so if you are selling your property during the fixed term maybe reconsider the term to match in with your plans.

If you are unsure about what turn rates will take, you could also consider hedging your bets and fix in half your debt and keep the other half variable.

Other people are trying to pay down debt as quickly as possible but still want to protect against rate moves.

Generally, once fixed you are limited to the amount you are able to repay above your normal payments each year.

A suggestion here is to consider realistically how much extra you will pay off the principal over the fixed period and leave this amount on variable so you are able to pay off more quickly without penalties but still have protection on the rest of your core debt.

To fix in or not to fix is a personal choice and one you should think carefully about before committing to a course of action.



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