Six months ago I wrote an article discussing my thought process around the decision to select a six month or a one year home loan mortgage.
Talk at the time was to fix for as short as possible as interest rates were expected to drop rapidly.
I ended up on deciding to get a one year home loan which expires in September. The reason being I thought interest rates would drop, but I didn’t think they would drop by as much as they needed to do be better off with the decision.
We are now six months on and can see whether we made the right decision or not.
To be better off with the one year loan, we needed six month interest rates to be 5.55% or more as we speak today.
The best six month mortgage rates are currently around 5.69%, with the big banks closer to 5.8%.
I’m glad to report that we will be a few hundred dollars better off with the decision to fix for one year, rather than six months. The crystal ball worked (this time).
This is not meant to a bragging article but it sure looks that way! The reason I am posting today is just to say that sometimes it pays to go your own way and not follow popular opinion.
The popular vote at the time of the decision was fixing for six months. Many popular mortgage broker companies saying to take the six months. The theory being interest rates were going down.
But I took a step back and ran the numbers and had a look at how much they had to go down. It’s not enough to know rates are going down. They have to go down by more than a certain amount to be better off. I wasn’t comfortable with how far they had to come down in the timeframe they needed to come down by.
To run the same analysis I did, you can use our free “mortgage rate required when choosing between two or more terms” calculator.
We have another decision to make come September, but is one we are greatly looking forward to. Coming off a rate of 6.19% to something closer to 5% will offer a lot of relief.
Thanks for reading.
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