Interest rates are on the way up – how long should I fix my mortgage for?

People often ask us what is the best term to fix their lending for.  A question even more common with interest rates looking to be on the rise, or at least unlikely to go any lower.

The answer is very dependent on your circumstances. 

Recent interest rate increases have been driven largely off the banks having increased cost of capital; it is costing them more to borrow money from overseas so it is costing you more to borrow money for your home loan.  Based on the Reserve Bank’s official cash rate (OCR) forecasts and given the banks have already built in increased capital costs to the current interest rates the one year rate probably offers the best value at present….  


The reason the one year rate offers the best value at present is that the difference between a one year and five year rate is currently 1% or more.  The projected rate of interest rate increase means you will likely be better off fixing your rate every year on a one year fixed rate over this period rather than fixing for 5 years at today’s rates.

This is of course by no means guaranteed and doesn’t mean this is the interest rate you should lock in. 

At Eightfold we encourage people to think about what their plans are over the next few years and how much they value certainty.  If certainty is important to you, then longer term rates are the way to go.  There are many reasons why it is worth locking in longer terms, for example your risk appetite or planned changes in your circumstances.

Structuring your loans correctly is another area where Eightfold can help.  We can look at if a revolving credit facility is a good fit for you as well as looking at if you will have the desire and funds available to make lump sum payments.  We will also look at ways you can take advantage of the current low interest rates to pay your debt off faster. 

To discuss your personal circumstances please email or call one of our advisers today for a no obligation free chat.

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