To Fix, or Not to Fix?

As the RBA deputy governor and the market continue their public spat over who’s got the right take on rates, our mortgage holders are posed with the age-old dilemma.

“To Fix, or Not to Fix? That is the Question” (Shakespeare, a long time ago)

Several big banks have thrown consumers a curveball by dropping their fixed rates in response to changing wholesale market funding costs and sentiments, pricing in at least 3 rate cuts across the next 2 years.

Mortgage holders might find the competitive pricing appealing but could hesitate due to strong global rate signals and FOMO if they remain locked in when rates change.

So, with the cost of living high, should you go for the immediate cash savings or hold off?

Personally, I’d hold off on fixing right now.

The potential savings aren’t compelling enough to justify the loss of flexibility and the risk of missing out on future rate cuts, especially if you’re on, or can negotiate decent rates.

Here’s what ABS says about the average Australian:

• Average Mortgage size: $636,597?
• Average Variable Rate: 6.28% p.a. on an owner-occupied 30-year mortgage

(If you’re on this or higher, please speak with someone even if it’s not my team)

A selection of the most competitive fixed rates

• Macquarie Fixed Offer 5.79% p.a for 2 years
• Westpac Fixed Offer: 5.99% p.a. for 2 years
• NAB Fixed Offer: 5.99% p.a. for 3 years
• ING Fixed Offer: 5.99% p.a. for 3 years

At first glance… If rates don’t move over the next 24-36 months, locking in at the most common rate of 5.99% p.a. could save you $396 a month to start off.

• Fixed Repayment: $3,417 p/m?
• Variable Repayment: $3,813 p/m?

But how does that pan out across the next 2 years??

1. Optimistic Scenario: 3 Rate Cuts in the next 10 Months (conservatively holding for late 2025 and 2026). If rates drop by the end of this year or early next year, you’ll kick yourself for locking in.

2. Balanced Scenario: 3 Rate Cuts in the next 9-15 Months (conservatively holding for 2026). A more balanced if not slightly conservative easing, shows that you’d still lose if you fix

3. Pessimistic Scenario: Rate increase followed by 3 Rate Cuts (Conservatively holding in 2026). If you’re looking to hedge against further rate rises, you may see some, albeit limited value depending on when rate cuts occur

Macquarie’s pricing does pose an intriguing proposition 20 bps lower than competitors,?but only if you’ve got a very average rate.

For my customers (who get regular loan reviews), it would look more like this?

Pretty standard pricing showing limited value in the most likely economic scenarios.

Any reason to still fix?

Fixed rates offer stability and certainty—you’ll know exactly what your repayments will be each month.?

You may wish to consider this if you’re really struggling with cash flows, anticipating rate increases or expect interest rates to remain high for an extremely extended period.

Also don’t forget—no offset accounts or redraws. Any spare cash you’ve got is sitting on the sidelines.

If you have to break the fixed term, you may face economic cost penalties, restraining refinance and selling opportunities.

My Takeaway

I’d hold off on fixing right now. The potential savings aren’t there and are not compelling enough to justify the loss of flexibility and the risk of missing out on future rate cuts.

However, if you’re particularly risk-averse or currently on a high variable rate, fixing might offer some benefits—but if it were me, I’d speak with my team or my lender prior to doing so, to either refinance or renegotiate rates before locking myself.?

If you’re still unsure or want to discuss your options, let us help you @ ChatWithConfidence rebrand.ly/chatwithconfidence