Optimal time to fix loan rates approaches

Borrowers who want to lock in to a fixed rate should consider that we are approaching that part of the interest rate cycle where fixed rates offer the best bet – but it is too soon to jump yet.

The past week has again seen more downward movement in fixed rates as the markets factor in steeper official rate cuts in response to the worsening economic outlook. As far as home loans go, most 3 to 5-year fixed rates are now up to 1 percentage point below standard variable rates and look attractive. St George's cut of 1 to 5-year rates to 6.29 per cent today sets the market low, but for how long?

While locking in to a longer term fixed rate is always a gamble, those attracted by the certainty they offer increase their chances of coming out ahead by locking in when variable rates are close to reaching their trough but before sentiment starts to turn from expectations of falling rates to the realisation they are at bottom.

With further significant variable rate cuts fully expected, we have not reached that point yet. However, you never really know for sure when fixed rates are at their lowest until the moment has passed so a judgment call will need to be made at some time over the coming months.

Think before you fix