Surely now is a good time to fix for five years. Isn’t it? 

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By Brendon Ojala

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Over the last month or so I’ve had many clients approach me about fixing their home loans for longer timeframes (a 5-year rate of 2.99% is fairly compelling right?), but is this the best option? 

If you have been reading my commentaries for any length of time, it probably won’t surprise you to hear me say “it all depends”.

Your decision will depend on your own personal circumstances, but also be aware that most commentators are picking rates to be stable (if not fall a little more) over the next year. It is fair to say that, over the last month, more and more of those in the know are talking less about rate drops and more about rate stability for a period. So, lets, go with stability. 

If you were sure rates would be stable for a year, then surely you would take the 1-year rate at say 2.29% and then in a year’s time fix for five years? It would give you a cheaper rate for a year, and then you still get some choice in a year’s time.

Here’s another way to think about it: How do you decide between a 1-year rate at 2.30% and a 2-year rate at 2.50%? Here is what I do. I think about what a 1-year rate would need to be in a year’s time to break even at the end of two years.

So, if I take a 1-year rate now at 2.3%, the 1-year rate would need to have raised to 2.7% in a year’s time to be breakeven as compared to taking a 2-year rate at 2.5% now. That is a decent size jump in a 1-year rate over the course of a year.

I hope that is of some help. When you are deciding on what is right for you, do have a chat with your Velocity Adviser. Although we don’t know for certain what rates will do (as is pretty clear from our annual Christmas predictions) we can at least work through the options with you.

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.