For those who were paying above 9 per cent back in 2008, today’s rates are crazy cheap (… ask your parents or grandparents what is was like to pay 17 per cent back in 1990).
With so much choice and competition borrowers can find some great deals.
But how low will interest rates go and how do you answer the age-old dilemma: fixed or variable?
First, here’s a quick lesson for borrowing newbies.
- A fixed interest rate is when you agree to pay a set interest rate for a set period of time, so you come out ahead if variable rates move up in that time, or not so great if rates drop lower than your fixed amount.
- A variable rate means your lender can change your rate – up or down – depending on what the economy is doing and their cost of lending you the money.
Many finance commentators have encouraged borrowers to always opt for a variable rate. To get a fixed rate is ‘betting against the banks’ because rest assured your lender’s number crunchers will have done some pretty slick forecasting to make sure they come out ahead.
But late last year even seasoned finance commentator Paul Clitheroe was questioning his own advice.
“I have argued against fixing home loan rates for nearly 40 years,” he wrote in his column for Money Magazine. “With fixed-interest loans sneaking under 2%, it is hard to see how you could seriously disadvantage yourself, but maybe a bit of a fence sit and doing half fixed and half variable is as good a guess as any!”
A half-half strategy can give you the best of both worlds, giving some certainty for budgeting with a fixed amount while still gaining some benefit if variable rates drop.
But ultimately your decision depends on your personal situation and you might find getting advice from an independent financial planner will take the stress out of the decision.