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Time to fix your mortgage?

Time to fix your mortgage?

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GOOD on Ian Macfarlane. The Reserve Bank chief says interest rates might rise, but not as far as he can see. Or put it this way: he'd expect it over time, not that he knows, or at least that's the present intention. Unless things change.

I'm glad that clears that up.

Not that it matters what rates do because, thanks to a quirk in the money market, you're better off fixing your mortgage anyway.

Or if you're saving, you're better off investing your money short as short can be.

Yes, even if rates drop, which seems pretty unlikely, it would still pay you to fix.

In fact, if you haven't fixed at least some of your mortgage you're shooting yourself in the foot - or your best friend if you're Dick Cheney.

The bank standard variable rate is 7.32 per cent, but the cheapest three-year fixed rate is 6.47 per cent, from the NSW Teachers Credit Union.

On the average-sized mortgage of $250,000, that's an annual saving of just over $2100.

That would cover exit costs from a variable loan - unless you're locked into a honeymoon - the entry cost of the new loan and still leave something on the table.

By the second year you'd be laughing. You can get five-year fixed rates for 6.64 per cent which might bring more peace of mind. If you want to keep your options open,try a smorgasbord of two-, three- and five-year rates. Even if rates were to drop, it would be in 0.25 per cent doses, spread over a long period.

It would take three rate cuts just to get down to today's lowest fixed rates, a prediction that no economist as far as I know is making.

And certainly not our friend from the Reserve.

No wonder, when you see what it would take to get a cut of that magnitude. There'd have to be a severe recession, which would be hard to come by when commodity prices are at a record.

Or the quirk in the money market, which pays more for short- than long-term money, would have to disappear.

Since this is more likely to happen with longer rates rising, rather than shorter rates falling, considering the underlying weakness of the dollar, not much chance there either.

Mind you, it's savers who have to be careful. They can get up to 6 per cent from a bank, which doesn't sound a lot but at least it's only one-year money.

More one-night-stand money, come to that. Commit for any longer and you'll be offered less, strange as it seems.

Thankfully, inflation is just under 3 per cent so even after tax on the highest marginal rate, the return on overnight money is a smidgin above the inflation rate. It won't make you rich, but at least you're preserving your capital until something better comes along.

And it will. One day. Maybe.

Source: The Sun-Herald.

Disclaimer: The information contained above has been provided as a general service. Any references to specific financial, legal, accounting, or taxation issues are done so in the context of general information and should not be relied upon as fact or construed as advice by the us in any of these areas. You should consult a relevant financial, legal, tax or accounting professional to assist in your particular circumstance.

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