Fixed vs Floating: In a World of Unknowns and What Ifs

Okay, so what's up with interest rates? Where are they heading and how long should I fix for, if at all? Graham Goodisson gives his take on the current fixed vs floating debate

As always, it depends on your overall debt reduction strategy and where you are in that cycle. It also depends on what you are planning to do with your property in the next one-to-five years.

For example, if you’re planning to sell in the next two years then don’t fix for three! Also, if you think there might be a major restructure of your finances within that period, then plan accordingly.

Right. With the pre-amble done, what new stuff do I need to know? Three points …

1) Banks are not fighting for your business

Banks are trying to build profit on their existing clients, but they’re not chasing new ones. Currently, they are not really interested in beating the bank next door on interest rates in order to get your business. In fact, they are sneakily adding a 0.15% here and a 0.1% there when your back is turned. These tweaks don't make a massive difference to your repayments but they do add to their profits! Just remember that your point on this earth is to add to the profits of Australian-owned banks!

2) Banks are saving for the “what if”

The Reserve Bank is putting pressure on banks to keep enough funds set aside for “what if” scenarios—the “what if” being some sort of financial meltdown.  This means they need to hold more money, which costs them in terms of what they pay investors. You and I ultimately pay for this.

3) Uncertainty from over the pond

The once great U. S. of A. is part of the problem. No one really knows what is happening with interest rates there. Some think they are going up and others think down. 

So what would I do?

I think the two- and three-year rates are good value as five-year rates make me nervous. However, I have also continued to buy European cars that cost me a fortune to run, so can I really be trusted?

Remember that this is not specific advice to you and the best course of action is always to have a chat to your Velocity Financial adviser.

Graham Goodisson 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.