Should I Fix My Home Loan Interest Rate?
It’s the question I’m getting from almost every client right now: “Should I fix my rate?”
It’s a great question, and there’s no one-size-fits-all answer. So let me break it down the way I’d explain it sitting across from you.
The appeal of fixing: beating the bank
The most common reason people want to fix is simple. They think rates are going to rise, and they want to lock in something better before that happens.
Here’s the reality though: in the last 25 years, there have only been a couple of periods where fixing your rate has worked out substantially better than staying variable. COVID being the stand out example, where people who fixed genuinely came out ahead for a number of years.
But here’s the thing. Would you have predicted this event? Most people wouldn’t. And that’s exactly what makes trying to “beat the bank” on interest rates so difficult. The banks have entire teams of economists working on this. It’s an incredibly hard game to win.
So when does fixing make sense?
In my experience, the best reason to fix your rate has nothing to do with trying to predict the market. It comes down to your personal circumstances.
Fixing makes sense when you want certainty, when you need to know exactly what your repayments are going to be for the next one to two years. That might look like:
- Your income is changing or dropping for a period
- Your expenses are increasing, a new baby, a renovation, a career change
- You just want to sleep better at night without worrying about what the RBA is doing every month
There’s nothing wrong with that last one. Peace of mind is real, and it has real value.
The part most people don’t think about
Here’s where I’d always pump the brakes slightly though, because fixing your rate comes with trade-offs.
When you fix, you typically lose access to an offset account and the ability to make extra repayments. So if you’re someone who’s building up surplus cash, you could end up with money sitting in a savings account earning less than what your loan is costing you. That’s not ideal.
The solution I often recommend is a split loan. Fix a large portion of your loan to get that certainty and peace of mind, while keeping a smaller portion variable. That variable portion keeps your offset account and redraw facility in play, so your surplus funds are actually working for you.
It’s the best of both worlds for a lot of people.
The bottom line
Fixing your rate isn’t really about predicting interest rates. It’s about understanding your own life, your cash flow, and what you need to feel financially stable right now.
If you’re not sure what’s right for your situation, that’s exactly what I’m here to help with.
Book a discovery call and we’ll work through it together - your situation, discussing your choices.
