Annual review a rate fix

Thereserve Bank has announced that contrary to what everyone expected, interest rates will remain on hold.

Talk about doing the opposite to whatweall wanted.

Sohowdoes one cope with contrary banks always doing the opposite of whatwe want?

After decades in the housing market (sigh) I can recall times where every monthly announcement was anticipated with dread and fear as rates seem to spiral upwards on a never ending cycle.

But there have been other times when every month brought good news and the promise of more dollars in our pockets, while yet other periods wheremanyhome owners were on fixed rates and therefore not so affected by this monthly news that is a never ending cycle of will they or won’t they.

I have also spent periods as a home owner on a fixed rate and can confirm that there is a real comfort zone.

True, at at some points it can be financial disadvantagous to have a fixed rate, but the pluses are that it is a cost you can budget for and work with, and you avoid the constant uncertainty.

There is a sense of financial peace of mind while your loan is fixed.

Whenyour rate is variablehow can you budget for that?

The uncertainty creates ‘‘what if’’ questions for potential buyers – it’s true paymentsmaybe affordable right now, but through no fault of yourownthese contributions could suddenly become rather uncomfortable.

Soami telling you all to get a fixed rate loan?

Well, fixed rates do have merits, but timing is everything.

Some experts say rightnowisn’t far off the best time to fix your rate, but herewego again with more of that total uncertainty.

Myownproposal to our meritorious political and banking leaders is that all mortgages should be on fixed rates as standard practice with annual rate reviews.

Twoor three year review periods could also be agreed to, but as part of this new style of fixed loans, there would be no more sneaky penalties for early settlement.

All the conditions should be identical to a typical variable mortgage.

This way our banks know what they will be getting, the home owner knows what it will be paying and the annual rate review will stop this month to month uncertainty.

Compare this to the second biggest financial outlay for a typical family – the car loan. They are fixed for the duration.

I do understand that home loans last for 25 years or more typically, while cars are much, muchshorter.

But if all mortgages have annual rate reviews this would allow home owners to monitor the general rates through the year and estimate the likelihood of a rise or decrease.

Formanyfamilies, a $100 increase on amonthly payment can hit hard – and with little warning.

As the property market does move in cycles when your home value is rising you are more forgiving, but flat or decreasing values with sudden increased or unknown mortgage costs can do nothing but give the market an air of understandable nervousness.

I amno financial expert but I did attend the school ofcommonsense. Surely an annual rate review for home owners would be preferable.