Fixed vs Floating


It may seem like groundhog again in the world of interest rates, but Brendon spells out the subtle changes that may influence your fix or float decision.


This month’s ANZ market commentary have pointed out that average mortgage rates have nudged a little lower in what we call the belly (two- to three-year rates) of the curve, but retained the familiar tick-shape.


So, from a pure “lowest is best” assessment, the one-year rate stands out. Slight movements lower in the two- and three-year rates have improved their breakeven points but not sufficiently for us to move from favouring the one-year rate as the sweet spot.


Longer-term rates remain very low by historic standards and offer certainty. The downside is that we struggle to see where inflation is going to come from to necessitate major lifts in the OCR.


To summarise all this, rates have dropped a little this month. So, if you want the cheapest rate take the one-year rate. If you want certainty, longer rates are historically still cheap. And ANZ don't see interest rates moving too much in the near future.


Whether you should fix or float is still a case-by-case issue. So, we don't believe it’s possible to say to all our clients as a whole, "You should do X." Many of our clients want to pay their loan off quickly, so will put a small amount on some sort of floating rate (be that revolving credit, offset or standard floating) and then fix the majority for some certainty. Others need more certainty than that.


As always a conversation with your friendly Velocity adviser can quickly work out a really good strategy designed with you in mind.


Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.