Interest rates – How low can they go?
Sally Suttie - Thursday, April 09, 2015
The question of how low can they go doesn’t have a definitive answer and by way of explanation many observers were surprised by the latest Reserve Bank cut on Tuesday. And there are others who think the Reserve Bank should have taken more drastic action twelve or eighteen months ago.
It’s a conundrum that has no solution. It’s a moving target and whatever the decision the Reserve Bank makes there are positive aspects on one side of the ledger and offsetting negatives on the other side.
So where does that leave the home owner on the assumption that your bank or lender has passed on this New Years gift? To fix or not to fix?
A few answers to your question depending on your situation.
If you already have some or all of your mortgage on a fixed rate, which is obviously higher than today’s fixed rates, be mindful of refinancing to
a lower rate as you could be financially worse off due to what is called break costs. If you are refinancing a higher fixed rate loan to take out a lower fixed rate loan a break cost calculation and cost may apply. The calculation is based on the difference between the two rates, the amount of the loan, and the unexpired portion of the existing fixed rate. Confused? Don’t be afraid. Just make sure you are made aware of any break costs before committing to any refinance.
If you are new to the market or perhaps have an existing 100% variable rate loan the conservative option might be to split your loan in some fixed and some variable. Perhaps 50/50 but almost any combination is available.
Or, If you think rates might have bottomed out you could fix 100% but remember the potential for break costs if at some time in the future you want to refinance to an even lower rate.
Call us. Would love to hear from you.