Help! You fixed your home loan. Should I lock mine in too?

Hi Nicole, Congratulations on your recent house purchase! I know what an amazing feeling it is to buy your first house on your own after a marriage breakdown. I’ve read your articles about how you fixed part of your new loan. You have previously mentioned that you thought interest rates would start coming down again in mid-2023. However, did you fix part of your loan because you no longer think that will happen? I would really appreciate your thoughts on this. Is it too late for me? Kristen

Thanks Kristen – it really is a wonderful feeling. I do need to preface this answer with the fact that the loan is my beautiful new baby – just six weeks old.

Many people were able to lock in their mortgages below 2 per cent. Borrowers don’t have that option now.Credit:Simon Letch

For other readers, I recently wrote that I deliberately structured my mortgage as two fairly equal split loans. I took both out on a heavily discounted variable rate, thanks to the full-scale mortgage price war that’s being waged right now.

This was to leave my options open if I decided I should fix at a later date. And just two weeks later, I did. Just the one loan. I will come back to that.

Many people were able to lock in their mortgages below 2 per cent during the pandemic. The time to fix was 2020, 2021, or the very beginning of 2022. Fixing is less wise when there are expectations of further rate rises.

But I didn’t have that option. And in finance, you can only deal with the prevailing circumstances.

Resenting the environment (‘Why am I so unlucky?’) or regretting your money moves (‘That was so silly of me!’) are always pointless exercises.

It was the rapidly rising inflation rate that spooked me. While it was forecast to top out at 7.75 per cent at the end of the year, it hit 7.3 per cent last month. Incidentally, the RBA has already revised its expected peak up to 8 per cent.

Fixed rates lifted almost immediately across the market, but the four-year fix on offer from my lender did not. And it was comparatively low – 5.49 per cent – and only about 1 per cent above my variable rate. So I nabbed it.

Controlling my outgoings is important on a single income and my fix is a hedge – and that’s why I would only ever consider fixing half my loan. Everyone can get interest rate forecasts wrong. The economy is fluid.

But what is expected now?

Bloomberg’s monthly survey of 35 economic analysts now predicts a higher terminal cash rate this hike-cycle of 3.6 per cent, up from 3.35 per cent last reading.

That implies another 75 basis points of rises – that would take my 4.89 per cent variable rate to slightly above my fixed rate. One rise is very likely to come in a week and a half, before a reprieve in January because the Reserve Bank does not meet.

Then the expectation is still that the Reserve will pause mid-next year and survey its handiwork and determine if the strategy to curb price rises and cool the economy has worked. But I didn’t wait for those forecasts. I saw the writing on the wall.

RBA governor Philip Lowe has lately also warned Aussies to expect more cash rate volatility as the central bank wages the inflation fight.

I might end up overpaying on my loan. But I might not.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me. Follow Nicole on Facebook, Twitter or Instagram.

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