After all the speculation leading up to this week’s RBA meeting, rates were left unchanged.
That surprised quite a few economists and banks, many of whom were expecting another increase.
Which brings me to an important point…
One of the reasons I do these “Should I Fix?” updates is to show what the forecasts are saying. But if there’s one thing we’ve learnt over the last few years, it’s that forecasts are often wrong.
In fact, most of the major banks expected rates to rise this week (until recently). They didn’t.
So while forecasts can be useful, they shouldn’t be the only thing driving your decision.
What’s The Current Outlook?
Using the latest Westpac forecasts, they’re currently expecting two rate increases in August and September, followed by rate cuts during 2028.
Personally, I’m a bit sceptical.
My view is that the economy is looking a little shaky and, assuming geopolitical tensions settle down and oil prices ease, I think we’re more likely to see rates stabilise before eventually moving lower.
Of course, that’s just my opinion, and economists have proven repeatedly that predicting rates is harder than it looks.
What Do The Numbers Say?
Based on current pricing:
- 1-year fixed rates are around 6.19%
- 2-year fixed rates are around 6.14%
- 3-year fixed rates are around 6.09%
Using a $680,000 loan, the modelling suggests:
- A 1-year fixed rate could leave you around $1,500 better off than variable if the forecast rate increases occur.
- A 2-year fixed rate could leave you around $3,500 better off.
- A 3-year fixed rate could leave you around $1,300 better off.
Once you move into 4 and 5-year fixed terms, the forecasts suggest variable may work out cheaper over the long run, although nobody really knows what rates will do that far into the future.
The Bigger Question
For me, fixing has never been purely about saving money.
I look at fixed rates a bit like an insurance policy.
You may end up paying a little more. You may end up saving money.
But if you’re:
- starting a family,
- planning parental leave,
- changing careers,
- starting a business,
- or simply want certainty,
then knowing exactly what your repayments will be can be incredibly valuable.
On the other hand, if flexibility is important to you, remember that fixed rates often come with restrictions around extra repayments, refinancing and paying out the loan early.
So… Should You Fix?
The numbers currently favour shorter-term fixed rates if the forecasts prove correct.
But the decision shouldn’t come down to forecasts alone.
The real question is:
Would you rather have flexibility, or certainty?
If certainty helps you sleep better at night, fixing all or part of your loan could be worth considering.
🎥 I’ve recorded a short video walking through all the numbers and assumptions here: