The mortgage conundrum – fixed or variable?

When the Reserve Bank of Australia elected to keep the official cash rate on hold at 4.75 per cent at the beginning of the month, it was the tenth consecutive month that the same decision had been made and marked the longest period that rates have been on hold for five years.   


As opposed to being able to enjoy this extended period of steadiness, the market has experienced fairly volatile interest rate expectations, creating uncertainty and likely playing a role in the dampening of buyer activity in the residential property market. 


Only a short time ago economists were warning consumers to prepare not for if, but when, rates would rise.  But with the heightened concerns for global financial conditions that we have seen of late, expectations now look to be that rates will continue to be held, or even dropped.   


Understandably, such ambiguity surrounding the future direction of the official cash rate creates somewhat of a dilemma for home buyers looking to secure housing finance and raises the illustrious question – is a fixed or variable rate the better option? 


Traditionally, when rates have looked to track upwards, borrowers would seek to lock in an attractive fixed rate, even refinancing to do so, to protect themselves from potentially higher rates and thus more expensive interest repayments. 


Alternatively, in past periods where conditions have seen rates come down, many borrowers would choose to go with variable rates, positioning themselves to take advantage of the possibility of a lower mortgage rate. 


As we have seen in the years gone by, for buyers in the current climate, uncertainty surrounding interest rate movements have made the ability to decide on a fixed or variable rate quite difficult.  However, an article in the October 2011 issue of Your Investment Property magazine prompts borrowers to think about mortgages a little differently. 


Michael Lee, author of Mortgage Free Debt Free* encourages buyers to recognise that variable and fixed mortgage rates are both a gamble.  Fixing, he says, “is like betting against the bank because they know what interest rates are likely to do and always set their rates to come out ahead.”


In my opinion, this situation highlights not only the importance of making the best decision with regards to choosing a fixed or variable mortgage rate, but rather how necessary it is to work with a mortgage professional to cater a finance solution that is specific to your situation.  Borrowing isn’t just about the mechanics behind your rate, but rather the features that are built into your package and the flexibility these entail.


Every lending institution offers something different – with varying advantages and drawbacks.   Choosing to sit down with a lending professional who understands the ins and outs of a large number of different mortgage products is probably the safest ‘bet’ you can make to ensure you obtain the best possible financing solution at your time of purchase.  


If you would like to speak further to a mortgage professional about your borrowing options, please visit to find a CENTURY 21 Home Loans broker near you. 

*Michael Lee is the author of ‘Mortgage Free Debt Free’ and the managing director of independent finance research company KeyFacts.  

Posted by Charles Tarbey on 26/09/2011 at 9:46 AM | Categories:


Richmond mortgages

Richmond mortgages wrote on 23/09/2013 8:59 PM

Nice blog! In my opinion the market for home loan deals is quite variable and can't be easily predictable if your are new.

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