Is it time to fix your mortgage interest rate?

If you have a mortgage, the current historically low interest rates have no doubt been a welcome relief.

Australia’s official cash rate, as set by the Reserve Bank of Australia, has been sitting at 2.5 percent for the past nine months and economists such as Westpac’s Bill Evans are saying it’s unlikely to go down further. According to Evans, the cash rate has reached its lowest point and will begin rising in the second half of 2015.

So is now the time to fix your mortgage interest rate?

If you would like some certainty in your mortgage repayments, then a fixed interest rate may be for you – it’s easier to budget when you have a fixed rate loan as the repayments won’t change during the fixed period. The problem is that fixed rates have already gone up.

“One year ago, fixed interest rates were below the variable rates,” said Paul Cooke, senior adviser with Parker Financial Services.

“Fixed rates are now all above the current variable rates.”

Nevertheless, you won’t get a better deal on a fixed rate if you hold out any longer.

“Fixed rates won’t go down any further,” Cooke added.

Switching to a fixed rate now means your repayments will initially be higher than if you remain on a variable rate, but you will be in a better position once rates rise in the next 12 months.

“It’s getting to the stage now where it’s worth suffering a little bit of pain now because once rates start to jack up, they will go up fast,” Cooke said.

You can only fix home loan interest rates for a set period – usually a minimum of one year and a maximum of five years. Alternatively, you can hedge your bets by fixing the interest rate on a portion of your mortgage while leaving the remainder on a variable rate.

“I suggest to some of my clients to fix 25 percent or 50 percent of their mortgage,” Cooke said.

“That way if interest rates do stay low, you are getting some advantage of the low variable rate while being prepared for the eventual rise.”

Cooke advised that to get the full benefit of a fixed rate, you should be considering a three-year or five-year term. When interest rates begin to rise as expected in approximately 12 months, you will gain at least two or four years on a better rate.

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