Are rates going up or coming down?
Depends who you ask.
Depends when you ask.
Depends on whether you take a long term or short term view.
Depends how long your long term view is.
And obviously, it depends on how short your short term view is.
What can we learn from this?
The only logical conclusion is that no one knows. And that really is the bottom line. If the experts really were experts, they would get their predictions right 99% of the time… which they don’t. MyRate reviews their prediction performance regularly and the results are far from impressive.
This month, the chances of a rate cut went from “it’s a sure thing” to “highly unlikely” almost overnight. Again, the reason being, quite simply, that there is no way to know. The market dictates rate movements and the way in which the market moves cannot reliably be predicted.
The experts are great at telling us why rates did go up or why they did go down… but that is after the fact – and even then their logic is debateable.
This is a topic we have covered a few times before – but this has been a particularly interesting week for rate moves. As mentioned, consumers went from expecting a cut, to receiving an increase. That is quite a big change to have to deal with… but it drives home the point very effectively that trying to guess which way rates will go is pointless.
During volatile times, more people fix their interest rates. The majority of borrowers still choose variable, but there is usually a pickup in fixing during times of regular interest rate moves.. both up and down. This then usually correlates to an increase in the number of enquiries relating to getting out of a fixed rate loan once things settle down again. As such, it is always worth revisiting the reasons people choose to fix… because breaking a fixed loan contract is almost always, a very expensive exercise for borrowers.
Fixing the interest rate on your loan is one way to ensure your rate does not move. If you are looking at fixing because you are risk averse and want certainty re your repayments, then fixing makes a lot of sense. However, if you are thinking about fixing because you are trying to predict which way things will move so you can get a saving benefit, then you are most likely asking for trouble. That is it. It is simple. Do it for peace of mind, and peace of mind you shall have. Do it try and beat the market… and you may as well head to the casino…