Should I Fix My Interest Rate Now, or Wait and See if Rates Drop Again?

With interest rates making headlines over the past couple of years, it’s no surprise that many Australians are wondering what to do next – fix their interest rate now, or wait and see if they drop again.

It’s a tough decision; the right choice depends on personal circumstances, financial goals, and risk tolerance. At Inovayt, our team breaks it down for our clients so that you can feel confident and in control of your next move.

Here are the pros and cons, what the market’s doing, and how to find a balance that works for you.

Understanding Fixed vs Variable Rates

Before deciding whether to lock in your interest rate, it’s important to understand the key differences between fixed and variable home loans.

• Fixed rate loans let you lock in an interest rate for a set period, typically between one and five years. This means your repayments stay the same, no matter what happens in the market. Fixed loans are great for budgeting and provide peace of mind if rates rise, but they often come with less flexibility and can include break fees if you want to make changes.
  
• Variable-rate loans, on the other hand, move with the market. If interest rates drop, so do your repayments. But if rates go up, your repayments increase too. These loans tend to offer more flexibility, such as extra repayments or redraw facilities, but they can be unpredictable.

There’s also the split loan option, which combines fixed and variable elements.

What’s Happening With Interest Rates Right Now?

We’ve seen some of the most dramatic interest rate movements in Australia’s history in recent years. After a long period of record-low rates during the pandemic, the Reserve Bank of Australia (RBA) began increasing the cash rate to curb inflation.

Now, many homeowners are asking: Have we reached the peak, or are more changes on the horizon?

While there’s speculation that rates may start to ease again, nothing is guaranteed. Some economists predict gradual rate cuts later in the year, while others caution that inflation is unpredictable and further increases can’t be ruled out.

The reality is that nobody can predict the future with certainty, which makes the decision to fix your rate (or not) more about strategy than speculation.

Factors to Consider Before Fixing

Here are a few personal and financial factors to weigh up before deciding whether to fix your rate:

1. Your Financial Goals

Are you planning on renovating, moving, or paying down your mortgage faster? Fixed rate loans often have limitations when making extra repayments or exiting early.

2. Income Stability

Locking in your repayments can offer reassurance if you’re on a fixed income or a tight budget. But if your income fluctuates or you expect a pay rise, a variable loan may suit your lifestyle better.

3. Risk Tolerance

Some people prefer knowing their repayments won’t change for a few years, while others are comfortable going with the flow of market fluctuation for potential savings.

4. Loan Flexibility

Do you need redraw or offset features? These are often more readily available with variable loans. Fixed loans can be more rigid in structure.

5. Current vs Future Rates

It’s worth comparing today’s fixed rates with what’s predicted in the market. If the fixed rates available now are higher than your current variable rate, switching may not make sense unless you’re protecting against further hikes.

The Case for Fixing Now

So, when does fixing make sense?

• A fixed loan can help with long-term financial planning if you value certainty and stability.
• With competitive fixed rates currently available, it may be a chance to lock in a deal before any more volatility.
• Fixed loans suit borrowers at the start of their mortgage journey, who want to know exactly what their repayments will be as they settle into a new home or routine.

It’s also worth noting that many borrowers choose to fix only a portion of their loan.

The Case for Waiting

On the flip side, there are reasons to stay variable, at least for now.

• Some economists expect rates to drop later this year or next, meaning a variable rate might become more attractive.
• If you plan to make extra repayments, refinance, or sell in the near future, a variable loan gives you that freedom.
• You might simply prefer to wait and see, especially if your current rate is competitive and you’re comfortable managing fluctuations.

Remember, though, that ‘waiting’ can come with its own risks. If rates were to climb again, you could pay more in the long run.

Finding a Middle Ground: Split Loans

A split loan might offer the best of both worlds if you’re feeling torn.

This option lets you fix a portion of your loan and keep the rest variable. For example, you could fix 60 per cent of your loan to enjoy stable repayments, while keeping 40 per cent variable to benefit from potential rate cuts or repayment flexibility.

It’s a popular strategy that provides a balance of certainty and opportunity, and one we often recommend for clients who want to hedge their bets without going all in.

How Inovayt Can Help 

At Inovayt, we know no two borrowers are the same. Whether you’re a first-time buyer, refinancing your current loan, or just weighing your options, we’re here to help you understand what works for you.

Our expert mortgage brokers can:

• Explain the pros and cons of each option in simple terms.
• Compare a wide range of fixed and variable rates across multiple lenders.
• Help structure your loan for now and the future.
• Guide you through the paperwork and process with ease.

We take the guesswork out of your decision so you can feel confident in your next move.

In the end, there’s no one-size-fits-all answer to the question of fixing your interest rate or waiting.

What matters most is your financial situation, lifestyle, and your risk appetite. While it’s tempting to try to outsmart the market, the smarter move is making a decision that’s right for you, and that’s where expert advice makes all the difference.

If you’re ready to explore your options, we’d love to help. Contact the Inovayt team today and let’s make your home loan work harder for you.