Fixed vs Floating: What's the Best Rate?

With not a lot of movement in the world of interest rates, what terms are looking most appealing? Brendon explores.


Since last we wrote, interest rates have, on the whole, been static.


A good discounted one-year rate (which is the current "low spot" in the interest rate curve) is 4.45 per cent. So, if you want the cheapest rate, take this. But, be warned, if rates go up then in a year’s time, when you come to re-fix, you will be paying a higher rate.


A good three-year (discounted) rate is around 5.0 per cent. If you think rates are going to go up (i.e. the two-year rate being higher than 5.4 per cent in a year’s time) then take the three-year rate. During that three-year period you will be better off on average.


If you are going to sell your house in a year’s time take the best one-year rate you can find.


If you have $100 surplus cash each week, then make sure some of your loan is floating so you can make the most of this extra cash (it could save you heaps).


If you are on two incomes now and are planning to drop to one income in a couple of years’ time, make sure your extra funds are saving you interest now, but can be accessed later on if needed.


If you have good income but are terrible with your money, you should increase your mortgage payments to enforce regular saving.


And, finally, maybe we should just have a chat to give you some advice around this? Give us a bell.


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.