With interest rates in Australia decreasing substantially over the past few months many people are once again asking that age old question- should they fix their interest rate? In the US, until several years ago all home loans were fixed. In New Zealand most mortgages have fixed rates.
Fixed rate mortgages provide certainty of repayments over a set period. In the US the rate is fixed for the full term of the loan, often 30 years, meaning there is a reduced likelihood of clients getting into trouble with repayments. Unfortunately several years ago the US market introduced a new product, the adjustable rate mortgage (ARM), and those involved did not fully understand (or simply chose not to understand) the implications.
Over the past 50 years in Australia the average bank variable interest rate was 8.87%. From January 1993 through to the middle of 2008, three year fixed rates were above the bank standard variable rate for 9 of those 15 years (source: Australian Bank Home Loan Interest Rate History. (Ability Finance. March 31, 2008). However, until recently the local bank manager easily discounted a client's rate by between 0.4 and 0.7%, therefore the fixed rate has nearly always been higher.