SELECTING A LOAN DOES NOT HAVE TO BE A GAMBLE.

What are interest rates going to do? Up or down? In my line of work, it’s the most commonly asked question.

A lot of brokers are reluctant to predict the future because they don’t want angry clients ringing them a year later saying “you said interest rate were going to go up (or down) and they didn’t”. I, on the other hand, inform my clients on exactly what the market will do.

INTEREST RATES WILL GO BOTH UP AND DOWN,
GIVEN A LONG ENOUGH PERIOD OF TIME

If you plan to keep your current mortgage for 30 years, it is possible that your interest rate will change over 100 times. So, should you lock in a fixed rate or opt for the variable? Logic will tell you that interest rates will eventually go up, so it may be worth locking in the banks ‘fixed low rate’ for the next 3, 4 or even 5 years, in an attempt to beat the bank at their own game.

Yet, a fixed rate remains a gamble.

Whether interest rates remain stagnant or decrease while you are on a fixed rate, you will almost certainly pay more interest. Worse still, it is often very costly to break a fixed rate loan before the fixed period ends if you want to change to another loan product with the same bank or change banks altogether.

You can, however, help even the odds if you use a fixed rate loan as a budgeting tool. A fixed rate loan will provide certainty with your repayments regardless of interest rate changes. If you have some personal changes ahead such as an employment switch, a new addition to the family or other increased expenses, knowing exactly what you need to pay to cover your repayments may help you sleep at night.

And remember, gamble responsibly.

Michael De George