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Interest rates getting lower - Should I break my fixed term contract?
We signed on a fixed term mortgage - $222,000 at 8.4% which does not expire until June, 2012. This mortgage package allows us up to $10,000 a year in extra repayments. I rang the bank today and was quoted $19,000 to break the fixed term and take it back to the variable of 7.2%. I want to know whether it would be better to continue with the fixed term or to cut our losses and get out now. My husband and I work full-time and are unable to get the quick advice we need, as interests rates seem to be getting lower and lower. Please help with some constructive advice. Maria, Sydney.
I can't give advice as I don't know your circumstances, but you need to do some maths. The experts think the cash rate of interest could go to 3.25%, which could mean home loan rates at say 6%. Some think even lower!
Work out how much you save each month by switching at current rates and then at 6%. Find out how long it takes you to get back your $19,000. You might wait until about March and then economists think we will be close to the cutting bottom. Then think about switching to another fixed rate deal, but once again work out how long it takes to get your breaking fee back.
There is no simple answer and it's a gamble, just like the one you made when you went into a fixed rate in the first place.
Whatever you do, make sure you know the comparison rate of interest, which builds in the fees in the loan so you know what the real rate of interest is. Good luck.
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