Should you fix your home loan rate if the RBA move this month?

There’s strong speculation the Reserve Bank of Australia will drop the cash rate on Tuesday, but it doesn’t mean you should fix your home loan’s interest rate. Here’s why.

Put your hand up if you’ve ever fixed your home loan and been left worse off.

I’m raising my hand.

I got done over when I fixed my first mortgage way back in 2012. I thought I’d hedge my bets and split my debt 50/50.

I locked in half of my loan at around 5 per cent and then watched variable rates go into freefall.

I vowed I would never fix rates again, but as they say never say never.

We’ll get to that later.

MORE MONEY NEWS:

Lenders continue to slash fixed rate mortgage deals

Don't rely on the banks to give you a good deal

A couple assessing their household costs including their home loan rate. Picture: iStock

In recent weeks there’s been huge speculation the Reserve Bank of Australia governor Philip Lowe will cut the cash rate next Tuesday.

If he does it will see the cash rate move for the first time in nearly three years and drop from 1.5 per cent to 1.25 per cent.

For borrowers wondering whether now is the time to fix, the short answer is no.

Take a chill pill and relax because lenders may drop rates further regardless of what the RBA does then.

Many fixed and variable rate loans are as low as 3.49 per cent so if you are thinking of fixing there’s no need to get your skates on.

Financial institutions have continued to reduce rate deals in recent months - particularly fixed rates.

According to financial services firm Canstar, up until Tuesday last week 126 fixed rate deals had experienced decreases in the past seven days.

However, in the same period no lenders had moved on variable rates.

For owner occupiers making principal and interest repayments on a $400,000 80 per cent loan-to-value ratio, the minimum basic variable rate is 3.49 per cent.

The rate for the cheapest three-year fixed rate loan is the same amount, at 3.49 per cent.

What is potentially pushing towards a potential rate cut tomorrow is the March quarter inflation results which came in at a big fat zero.

Nada.

Annual inflation is tracking at about 1.3 per cent for the year and still well below the sweet spot of 2 to 3 per cent.

In simple terms this means the economy isn’t growing.

Wage growth is non-existent too, so with the federal election looming if there’s a rate cut it won’t look great for old mate ScoMo.

It means the economy needs a rev up, and by dropping the cash rate from 1.5 per cent to 1.25 per cent the desire is to get people to open up their wallets more.

So for borrowers on a variable rate deal, make sure you know what you are paying.

If your rate has got a “4” in front, ring your lender and demand a better deal.

But back to fixed rates and my “never say never” story.

I fixed my property investment loan when investor loans significantly dipped in 2016.

I’m locked into a three-year fixed rate deal at 3.89 per cent and giving myself a pat on the back for almost perfecting the timing.

But it doesn’t always work like this, with fixed rates you are taking a gamble.

Let’s see what happens tomorrow.

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@sophieelsworth