What to do with interest rates?

The Reserve Bank left interest rates unchanged at 3.25 per cent at Tuesdays meeting.

This decision surprised most economists who were tipping a cut between 25 and 50 basis points. With rates currently on hold, is now the time to lock in a fixed mortgage rate?

Prescott Securities chief economist Daryll Gobbett recommends that we give it a few more months, as rates could still fall further. He maintained that we were looking at a cash rate of 2 per cent or 2.25 per cent possibly by May.

Desiree Fraser Count Wealth's financial planner felt that existing fixed rate deals didn't hold any great appeal. Ms. Fraser advocated using fixed rate mortgages only to protect yourself, if you know that you can't afford a larger monthly repayment - but not for trying to predict what the future may or may not hold. If you know that you cannot afford for interest rates to go up another 3 per cent in the near future then lock it in now to protect yourself.

Another good suggestion is to put any extra cash from a rate cut towards your home loan. The best advice for mortgage holders is to maintain your payments at the higher interest levels, as you will be pleasantly surprised at the compounding effect. Mr. Gobbett further suggested to keep chipping away at your mortgage.

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Published on March 3-th, 2009 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
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