Thinking of fixing your interest rate? Take some advice from Mr T
As home loan interest rates continue to tumble, it’s worth remembering the words of a scary cult TV star if you’re thinking about choosing a fixed-rate mortgage.
If The A Team’s tough-talking hard man, B.A. Baracus, was watching Australia’s home loan market right now, he’d know exactly how to react.
“I pity the fool who fixes their interest rate,” is what B.A. would say.
As interest rates tumble in Australia and around the world, fixing your mortgage rate now is like asking to be smacked in the mouth.
MORE: The money movement changing people’s lives
MORE: Sex versus money — the great gender divide
Our Reserve Bank has cut its official cash rate twice in recent months to a record low 1 per cent, and many economists predict more cuts in the coming months. The US central bank has started cutting rates, New Zealand and India have too, and there’s talk that more will follow.
Borrowers generally fix their mortgage rate for certainty of repayments, but the big certainty today is that interest rates won’t be rising any time soon.
Another reason why people fix is to lock in a lower rate than they can get on a variable loan.
However, new figures from research group Canstar show that fixed rates for two-to-five year terms are around the same or higher than the best variable rates available.
The average basic variable rate for a principal and interest loan is 3.77 per cent and the best rate is 2.99 per cent, Canstar says. For two and three-year fixed rate mortgages the interest rates average around 3.57 per cent, while four and five-year fixed rates are above 4 per cent.
If central banks continue to cut, variable rates will fall further.
The global push lower looks likely to continue amid the US-China trade war and countries trying to keep their currencies down to help out their exporters and boost their economies.
Many of us ignore economics, which is probably a good thing because economists’ forecasts around interest rates have been consistently wrong for years.
But we do care about whether we are paying too much on our home loans.
Some banks might suggest fixing your mortgage to lock in these low rates, but they’re probably just trying to lock in your business to stop you jumping ship to a cheaper lender.
I personally have fixed interest rates twice in the past decade or so.
Both times I did it, economists were forecasting that interest rates were about to rise, so I locked in. On both occasions, more rate cuts came along and resulted in my mortgage costing more than it should have.
Twice I’ve been a fool, which brings us back to hit 1980s TV show the A-Team and tough guy B.A. Baracus. B.A’s name is an acronym for Bad Attitude, and the character was played by magnificent mohawk-sprouting Mr T, whose real name is Lawrence Tureaud.
Lawrence, er, Mr T, also had some interesting things to say about pitying fools: “Pity is between sorry and mercy. See, if you pity him, you know, you won’t have to beat him up. So that’s why I say fools, you gotta give another chance because they don’t know no better. That’s why I pity them!”
Pity me Mr T!