This age old saying in the vernacular also works with mortgages.
But why? Fixed interest rates on a home loan are often higher than variable rates, but it’s all dependant on the global bond market. Fixed rates are funded by the global bond markets, meaning the bank sells your debt in an international market, which is usually anchored to long term debt mediums, like mortgages and which often involve higher interest rates. To fully understand this function of international finance, you really need to understand the yield curve of certain securities such as the yield of a 90 day bank bill to a 10 year bond.
However, if you aren’t an international banker, why in the world would you need to understand that?
Here’s how I look at this problem
In my 23 year investing career, I have never ever fixed interest rates. There are two reasons for this:
Firstly, I don’t think my understanding of global finance markets is quite as good as that of the team of accountants, university trained international finance and economic professionals and other sundry finance specialists who make up the large finance research teams that the banks use to determine future strategies.
Secondly, the main reason, is that I think back to all the times the big banks have helped me out by keeping interest rates low, dropping them as soon as the RBA does, putting them up only if and when they absolutely must. Generally, giving me a fair go because they have their customer’s interests at heart.
No, not really.
What I do think however is; are the big banks more interested in helping me out, or making huge profits? We only recently had a Royal Commission that proved without doubt that banks are more interested in making huge profits than caring for customers, even customers who are still with us, let alone those who have passed away.
With this in mind, I wonder why the banks would want to set a fixed interest rate for my benefit.
What do you think?
Can you think of any reason why banks would forego huge profits for our benefit? No, I can’t either. Generally speaking, if the banks are fixing interest rates for a certain period, then it is for their benefit and not ours.
This is not to say that you should never fix your own mortgage for a certain period to suit your own individual circumstances. There are certainly times when a fixed rate is beneficial to your goals, your strategy and your situation in general. Furthermore, some people just like the idea of knowing exactly how much repayments will be every time for a fixed period.
Before you make any decision to use variable or fixed interest rates, speak to your broker, accountant or other finance professional to determine what is best for your situation. Once you’ve done that, speak to us here at PPBA to discuss the best property to suit your situation.
Call us – 0490 020 801
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