So as an investor, should you lock in a fixed rate that is lower than the variable rate? This is an age-old argument and there are pros and cons at both ends.

Fixed home loans

A fixed home loan rate provides certainty as interest repayments will not vary over time. However, it can have significant restrictions and may work against investors if rates decrease and you aren’t able to take advantage of these savings.

For example, between 2007 and 2008, the RBA cash rate was approximately 7.25 percent with concerns that rates could hit double digits. Those that locked in a fixed rate during this period would have missed out on the considerable savings generated by dramatically falling rates over the next few years.

A fixed rate can also have “break fees” meaning that if your circumstances change and you want to change your loan, be it to a variable loan or to another financial institution, it will cost you.

Trying to pick the best time to fix your home loan rate is a gamble because you are essentially betting against the banks’ economists who forecast interest rates into the future and use this data to arrive at a fixed rate.

I would only recommend a fixed rate to individuals that would not be able to cope with any interest rate increases.

Variable rate home loans

By keeping your loan variable – and therefore flexible, you are not locked in and have the benefit of making additional repayments on your loan. Also, these are generally lower than a fixed rate.

For savings over the long term, in my opinion it is preferential to go with a variable rate loan, even if the movement between variable and fixed rates fluctuate.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information.