THE year is shaping up to be interesting. Sadly, this does not mean I am in possession of some top secret information, retrieved via encrypted message from a satellite above Uzbekistan and verified by a man with a moustache, trench coat and thick accent.

Rather I mean ‘interest rate’ interesting. Clearly that is not as exciting, but to be fair, for those of us encumbered with mortgages – or about to be – it is important. This is because the level of interest charged by lenders can be the difference between your daily coffee being a small flat white, instead of a super-size grande double shot mocha with low fat yaks milk. Or more seriously, interest rates can be the difference between living comfortably financially and really struggling – and the changeover can happen very suddenly.

A recent report from Westpac chief economist Bill Evans gave predictions for interest rates for 2014. It is fascinating reading as banks need to provide a balanced analysis as their customers are not only home loan slaves, but savers too.

So what does this mean for you? Now in no way must you take an article written by me as an assurity, but when I read this information, it made me decide to fix my home loan.

I’ve been considering this for ages. I waited and waited, but even with the predictions some minor rate cuts may occur in 2014, it seemed right for us as a family now.

Deciding to fix or stay variable is a personal decision that each person needs to take based on their own financial circumstances. It depends on many elements, not just RBA rates, but the deals the lenders and brokers will offer you personally at any particular time. I weighed up the risk and decided it was worth it for us right now – but that does not automatically mean it would work for you right now.

The key is to assess the information on how it relates to you and your financial goals and fully understand that playing the fixed rate game is exactly that; a bit of a game, a bit of punt, with a genuine risk factor built in.

I do consider that RBA rates will vary a number of times this year – it is even predicted they could drop further! Will that decrease be that significant and will it translate into more competitive fixed home rate loans? Many experts do believe if we are not at the bottom of the interest rate cycle we are pretty close, and history tells us that.

Rates in the UK and US have not gone down further in recent years and these countries have similar housing markets where home ownership is a typical financial and personal goal for many people. What is really up for question and concern for borrowers is whether rates will increase again this year, and if they do, will that kick start the rate increases cycle all over again?

You can only lock in rates in this country for a limited period of time – typically a minimum of one year and most commonly two or three years. Alternatively you can fix a portion of the mortgage leaving the remainder on the usual variable rate.

This always sounds such a great, shrewd way to manage your finances, but if you are like me you sit procrastinating because even though it seems the right time to ‘fix’ what if the rates carry on going down? In such a case, you will feel very financially cheated.

You should remember too before making this decision that most of the deals around fixed rates are exactly that – deals. This means there are penalties if you want to sell up and pay off the loan courtesy of an inheritance from long lost Great Aunt Sheila who went missing at sea on her world cruise, last seen dancing on the Captain’s table, gin and tonic in hand before heading towards the deck for some fresh air. In such instances not only do you have to pay off the loan but many thousands of dollars in penalties.

So should you or shouldn’t you fix? Here are my pros and cons to help you decide if you are considering taking the plunge:


????????????????????????If you are sure you know you will NOT need to sell up/pay off within the fixed term period

????????????????????????If you feel confident rates are close to the bottom of the rate cycle

????????????????????????If you can obtain a competitive fixed rate from a lender with no fees other than the unavoidable penalties

????????????????????????If you know you can live with yourself, if rates take a further drop and understand there is a risk that could happen during the period

????????????????????????If you like certainty, like to set your budget and hate financial surprises!

Stay variable

????????????????????????If you are unsure about your housing needs over the next few years, or the value of your home could be on the rise and you may want to sell

????????????????????????If you feel home loan rates are likely to decrease in the forthcoming years

????????????????????????If lenders deals are not attractive and are set much higher than variable rates, or just do not seem sufficiently tempting

????????????????????????If the thought of paying 4.9 per cent, when lenders are offering 4.6 per cent, because you should have waited, is going to drive you insane, stay flexible! (This is a hard one I can tell you)

????????????????????????If you can cope with the highs and the lows and know how to put money aside when rates are low to cover the other times.

Andrew Winter is the host of Selling Houses Australia on Lifestyle.

Posted by Andrew Winter – The Daily Telegraph (News Limited Network) on 11th February, 2014