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Hedge Your Bets

August 4th, 2015

Well surprise, surprise, the Reserve Bank has again left interest rates on hold, an expected decision as mortgage holders again get to breathe a sigh of relief until February 2015. There are no signs on the horizon that rates will change early next year either, as we continue our record streak of low rates and stability that hasn’t been seen since the 1960’s.

In a survey involving 37 economists, a staggering 94% have predicted rates to change in 2015, with 89% of the 37 predicting the next shift will be upwards. Though no one can predict the future with any great accuracy, it seems that with sentiment at least, rates will be headed up in the not too distant future.

With the above in mind, you may ask what can you do to protect yourself? The answer is simple, take stock of what you owe the banks, have a look at how much you have been able to pay off over the past year or two, then make a plan of how much you plan to pay off in the next two to five years, and seriously consider fixing the rest.

As an example, if you owe $400,000, you have been paying $15,000 per year, you may want look at a 5 year fixed rate. The result could look like- $75,000 variable and
$325,000 fixed. With most banks, this will give you a small off-settable variable loan, with minimal exposure to shifting interest rates, plus a large protected sum of $325,000. Overall, this example with most lenders would give you the ability to clear $100,000 worth of debt in 5 years, whilst allowing you to be protected from upward rate movement.

With 5 year fixed rates still at 4.99% at most lenders, I am not sure if there has ever been a better time to consider the above, as these rates are the lowest they have been in the last 50 years.

Source article; http://thenewdaily.com.au/money/2014/12/02/confused-interest-rates-heres-deal-2015/

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