Fixed versus variable rates: which is best?

Most economists think the Reserve Bank of Australia has a bias towards cutting interest rates as the mining boom cools and inflation remains contained. So those thinking of taking a fixed-rate mortgage have to be careful.

The average of the big banks' standard variable or advertised rate of interest is 6.81 per cent. But most people are paying about 6.11 per cent – a 0.7 percentage point discount on a loan of about $250,000.

The major banks' average interest rate on a three-year fixed-rate loan is 5.87 per cent, or 0.24 percentage points less than the variable rate most people are paying.

Borrowers could consider a 50/50 split between variable and fixed to spread the risk.

Source: Sydney Morning Herald

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