With the market conditions the way they are and the global economy as unstable as ever, it's very to hard to know which direction interest rates are heading and for how long they may be heading that way...Never have we had such a time where outside influences in the world can effect our economy here at home. Sure, there are expert opinions in the media, however we all know how wrong some of these experts can be...
So let's look at the basics of each. A fixed rate is exactly that...FIXED, for a period of time that you choose. You are betting on interest rates rising and being higher than your fixed rate for the amount of time that is beneficial to you in saving on interest had you remained on a variable rate. A fixed rate often has a premium built into the rate, sometimes two rate rises in fact. So if you choose this, you are in a way betting that the interest rates are going to rise twice and then keep rising so you will recoup the additional interest you had been paying when the variable rate was lower. Trying to time the rises or when to fix can be very difficult as in trying to time anything perfectly. However, in such unstable times there are some very competitive one and two year fixed rates out in the marketplace.
A variable interest rate loan is one that rises and falls over the term of the loan. The term of the loan is very long and we know that rates are going to rise and rates and going to fall but as with most things they tend to even themselves out. This is why I prefer a variable rate because trying to time the market is very difficult. I would not want to fix my loan when rates are high, only to them fall and be stuck with a fixed rate paying higher interest. Which brings me to my next point which is flexibility.
Fixed rates are often less flexible and can occur fees and penalties if paid off quickly, where as a variable rate has more flexibility in this aspect. If timing is poor, then you may find yourself stuck with a fixed rate when the variable rates are far lower. Of course, on the other hand you may be in a winning position. You may have a low fixed rate and be set with that while the variable rates are rising. This is a great position to be in..
A third option is to hedge your bets and split your loan into both a fixed and a variable portion. You can make additional repayments on the variable portion while leaving part of your loan fixed. In these unstable times, this is a great option to think about.
For more informative articles or to use my services please visit http://mortgageguru.com.au/fixed-or-variable/
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