I’ve just finished recording the latest “Should I Fix?” video after the Reserve Bank’s decision to keep rates steady. You can watch the video here.
Here’s a quick rundown of the key points:
Current Rates and Forecasts:
1. The recent unexpected 4.25% rate increase has significantly impacted fixed rates.
2. Current best fixed rates are: 1-year at 6.19%, 2-year at 5.94%, 3-year at 5.89%, and 4-5 years at 5.99%.
3. The best variable rate is around 5.99%, with some lower rates available under specific conditions.
4. Forecasts indicate potential rate reductions over the next year, but your personal situation should guide your decision.
Economic Context:
1. The unexpected rate rise has created uncertainty, affecting banks’ forecasts and their interest rate offerings.
2. Rising costs and larger mortgages are causing more financial stress compared to previous generations.
3. Decreases in retail spending and consumer confidence suggest potential rate reductions.
Rate Comparisons:
1. Fixed rates, while offering stability, may end up costing more than variable rates if the latter continue to drop as forecasted.
2. Example: For a $500,000 loan, the total interest for a 1-year fixed term at 6.19% is higher compared to a variable rate at 5.99%.
3. Over 1, 2, and 3-year terms, fixed rates often result in higher overall costs compared to variable rates.
Personal Considerations:
1. Fixed rates provide peace of mind and stability, much like an insurance policy against rate hikes.
2. Choose fixed rates if you value certainty and want to avoid thinking about rate changes for the next few years.
3. Consider your financial goals and plans, including major life events or investments, when deciding between fixed and variable rates.
While forecasts can guide you, they aren’t guarantees. Assess your personal financial situation when deciding whether to fix or stay variable.
If you have any questions or need further assistance, feel free to reach out and we’ll be happy to help!