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The Biking Broker Newsletter - 12th February 2009

Is it time to fix my interest rate?

The question on everybody’s lips at the moment: “Is it time to fix my interest rate?”.  A commentator on 7’s Sunrise show yesterday was non-committal, and rightly so.  The circumstances as to whether you go for a fixed rate or not are extremely personal.  For more information on the pros and cons, go to the link below:

http://au.pfinance.yahoo.com/home-loans/features/rate-debate/index.html

In addition to personal circumstances are the general economic circumstances.  “Will there be another rate cut?”.  “Are we going into recession?” etc.  To deal with the latter question first, many senior and respected economists (ANZ’s Saul Eslake, CommSec’s Craig James and NAB’s Alan Oster) are betting against this (Chase the Sun, Peter Switzer, Mortgage and Finance Brief, Dec-Jan 2009).  The chief economist backing only a mild recession is Stephen Walters of J.P. Morgan.  Whether we go into recession or not will have a bearing on how long rates stay near the bottom in this rate cycle.

Westpac cut its fixed rates yesterday (table below).  You need to consider your selected fixed rate and term against the possibility of further rate cuts and the possibility of rates going up again.  If you’re interested in fixing, give me a call and I can help you work out your savings over the standard variable rate and the cost/benefit implications of interest rate movements around a fixed rate.

For Example:  If you have a $300k mortgage and you’re on a discounted variable rate of 6.20% (after this week’s rate cut) you’re paying $18,600/yr or $1,550/mth in interest.  If you fixed at 4.99% for 3 years you would be paying $14,970/y or $1,247/month, a saving of $303/month!  Variable discounted rates would have to drop by another 1.21% (6.20-4.99) before you would make this saving!

And by the way, if you have a $250k +mortgage, and you’re not paying as little as 6.21% by the end of next week, when the major banks have all passed on their cuts, you’re paying too much!  Call me!
WESTPAC:  The following Home and IPL (Investment Property Loan) fixed interest rates will be effective from Thursday 4 December 2008:

table