You win some and lose some when you fix your mortgage

Last week’s cash rate cut caught a few of us here at the REIQ office a little by surprise. The first Tuesday of every month, we generally make a fairly educated assessment about what will happen at the Reserve Bank meeting that day, and I am happy to say that we get it right most of the time. Not so last Tuesday, unfortunately.

I had been sure the Reserve would cut rates, but that morning I changed my mind – something I now bitterly regret, of course. While I certainly felt the wobbly nature of the economy here and overseas warranted a rate reduction, there had been strong economic reasons for a cut in the past and the Reserve had done nothing, so I figured that is what it would do again.

At approximately 2.31pm AEST I discovered that the Reserve’s assessment of the economy had in fact been similar to mine (until I changed my mind, that is) and the cash rate had been lowered by 25 basis points to 3.25% – the lowest it had been since 2009.

But while cash rate cuts may seem like a very good thing, they also signal that the economy is not quite as flash as we would like it to be. Throughout 2011, in my humble opinion, the Reserve left the cash rate far too high for far too long because on the ground it was fairly obvious that things were pretty average. The property market was very flat, the retail sector was flatter, and to top it off we’d had our summer of natural disasters, which affected thousands of Queenslanders as well as the morale of an entire state.

Now with interest rates heading towards where they should have been last year (in my humble opinion), the question is how much lower are they likely to go?  Indeed, survey results released this week indicated that more than two-thirds of first-home buyers were intending to fix their home loan rate over the next 12 months to gain some repayment certainty.

I read somewhere once that when it comes to the game of fixing the interest rate on your home loan there is usually only one winner – and it is unlikely to be you. That said, I fixed a portion of the loan on my first home five years ago. Within 12 months, due to rampant inflation, rates had shot up to more than 9%, so that fixed portion actually saved my bacon.

Unfortunately, a year after that the GFC happened and rates plummeted to historic lows, so that fixed portion soon resembled some type of greedy goblin when I paid my mortgage every month. In hindsight, I think I ended up winning some and losing some.  But with fixed rates now heading towards 5%, I am starting to consider fixing once more but alas remain annoyingly undecided.

To fix or not to fix? That is the question. Whether ’tis nobler in the mind to suffer the slings and arrows of outrageous fortune, or to take arms against a sea of troubles.

See, even Shakespeare didn’t know what to do.