Ask Paul: Should we lock in our mortgage rate again?


Dear Paul, 

I owe about $800,000 on my mortgage, currently fixed at 3%.

It comes off the fixed rate in October. Should I refix now or wait and see how the Reserve Bank moves next?

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Our budget is tight, and I'm not sure how many more interest rate increases we can bear.

This is really stretching my very flawed crystal ball, Jonathan.

As you know, economists are seeking to read the tea leaves of our economy and the global economy as best they can, but their interest rate predictions vary widely.

The problem is that we are trying to answer a question that has myriad variables. Inflation is the obvious one and unemployment is another. Then we turn to geopolitics, including the war in Ukraine and China's trade policy, and the price of our key exports, such as iron ore. Then we need to add in our weather patterns and our farmers' production.

Throw all that and a whole heap more, such as consumer sentiment, into a blender and out comes an answer regarding interest rates. The trouble is that if any of the guesses we make about all, or some, of the above are wrong, our answer on interest rates will be wrong. The Reserve Bank has my sympathy.

So, I think we need to leave guessing about interest rates alone and focus on you.

If, after shopping around, you can fix your loan at a rate you can afford, then that can hardly be a bad decision. Rates may go up or down, but you have repayments you can afford.

What I would absolutely be doing is trying to build some reserves. As you look at your budget, are there any savings, any expenses, you can cut out?

Equally, is there any chance you or your partner can bring in a bit of extra income? Just about all of us have had moments when we feared we could lose our home.

That happened to us in early 1990 as our mortgage soared. It was not pleasant, but our car had to go and we got a very cheap replacement. We scrounged savings on food, with no entertainment or holidays. I have to say it was not much fun, but things were brighter a few years later.

Preserving our home was our first priority and we were very glad we sacrificed to do that.

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.