Think twice before fixing, broker advises

Homeowners considering fixing their mortgage rates should hold their fire and seek advice, according to Loan Market Group executive director John Kolenda.
With official interest rates at a 45-year low of 3.25 per cent, it’s a tempting time to move to a fixed-rate home loan but Kolenda says market economists expect the cash rate to fall as low as 2 per cent.
"I think rates will be at the bottom of the cycle when the Reserve Bank makes a 25 basis points cut," he says.
"We have seen the RBA make aggressive rate cuts of up to 100 basis points to try and prevent the Australian economy going into recession.
"When the central bank starts making smaller cuts that will demonstrate that it believes it has gone about as low as it needs to with the cash rate."
However, API deputy editor Matthew Liddy notes that fixed rates tend to move on the basis of changes in the wholesale money market, rather than strictly following the Reserve Bank's changes to the cash rate.
"This means that fixed rates could rise well before the Reserve Bank looks to start lifting rates once they hit their bottom," Liddy says. "As a result, it's never easy to pick the exact time when fixed rates are at their lowest point."
Kolenda says borrowers considering changing to a fixed rate should seek professional advice because fixed loans are often less flexible than their variable counterparts.
"Many fixed rate home loans don't allow you to make significant extra repayments to reduce the principal and if you do decide to pay it out early or refinance, there may be some substantial exit costs," he says.
"A good solution with rates at generational lows is to consider splitting your loan between a fixed and variable interest rate."