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Articles
Business Losses deduction denied
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New CGT Asset Register
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Coles Myer Shares in super funds
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Interest rates - fixed or variable?
Interest rates are about the lowest the have been in decades. Is it time to change from variable to fixed?

This is a financial question and not one able to be answered by your accountant.
However as a Protax financial planner I can give you some ideas for you to consider.

The variable rates have been declining consistently for about five(5) years and are at very low historical levels. They are extremely low in United States and Japan.  This is in response to Reserve Banks trying to maintain investment and consumer demand when economies were seen to be faltering.  If the economy rebounds then interest rates rise as the reserve banks try to keep it from too rapid an improvement.

So bankers have to predict what interest rates will be over the next few years - if they are offering a 3 year fixed rate then they predict what it will be during that period so that they can still be profitable on that loan.

Since many bankers are predicting increasing rates during this next five (5) years they have already started to increase their fixed rates.  It is far too late to fix it when the variable rate starts to rise!  The first sign I saw was when 10-year bond rates rose in March 2001.  For some, the time to fix has been any time after that.

If the Reserve Bank does not cut rates at its next meeting then I suggest that might be the trigger, to be able to say that fixed rates will not get any lower for some years.

In my view if you have suitable situation to benefit from fixing part of a loan, then current rates offered either side of 6% are quite attractive.  Flexibilty usually suffers when converting to fixed rates - but the cost saving can be substantial.

An application fee of $350 to $600 is normal and should be included in your cost-benefit analysis of whether you will gain.

Give me a call to discuss your circumstances.
    


18th-January-2002