Thursday, 14 February 2008

Don't lock in your rates!

As I was doing research on whether fixing my home interest rate is a good idea or not, (as in this post and this post), I came across this article on which has a 5 point attach on the rising interest rates.

I particularly unimpressed with their point #2, which says.

If you are tempted to lock in your rate - don't; it's too late. The time to fix is when rates are on their way up, not when they have already increased 11 times. While rates may go up once or twice more, by the end of the year slowing global growth on the back of the subprime crisis should force them downwards again. What's more, at the very time borrowers might feel panicked into fixing, banks have been quietly putting up these rates such that for the first time in years the average fix is higher than the variable rate. Cynical indeed.

Those whose finances really couldn't cope with one or two additional rises could consider fixing for a maximum of one year - but lock in for longer and you risk being stuck for years paying more than you need to.

I am truly amaze that it is advising people to not fix their interest rate as it is already too late. For some it may be too late, but rather than just give a blanket advice of not fixing the interest rate for more than one year, it should have provide some advice on doing the calculations to determine if fixing the interest rate is going to work out for you.

It is also pure speculation that the interest rates will increase twice more by the end of the year and it is predicting that the interest rates will be going down again in about a year's time. This goes against the forecast by RBA, as reported by this The Age's article.

For me, if after doing the sums, I am able to save some money or remain status quo, then it is worth while for me. Who knows when the interest rate will be decreasing, and more importantly, how many more increases will the interest go up by?

The other four points are worth considering.


Ian said...

It would more useful if they could tell us how to know if rates are going to go up or not. Then we would be able to follow their advice ;)

Ugly Debty said...

LOL Ian - exactly!

tehnyit said...

Ian, Not only more useful, but also more profitable as well!