To fix or not to fix, that is the question so many people are not honest with themselves about.
In the early days of my career I saw interest rates go to 15% and then slowly creep down from that point. Around that time a significant proportion of customers were sold/chose cheaper fixed rates on remortgage deals of 10-11% the theory being they would escape the volatility of the market and be able to budget without risk.
However when I transferred to the mortgage desk a few years later around half of my time was spent dealing with complaints. These were customers trying to exit what had become comparatively expensive fixed rates, and not wanting to pay the early repayment charges that would be incurred.
It didn’t seem to matter that their reason for originally taking out the fixed rate may have been sound, but seeing new rates far cheaper than the rates they were committed to left them feeling “ripped off” and at the time I could sympathise with them.
The lesson from this has always stayed with me and if you are considering a fixed rate there are 3 questions I think you should be honest with yourself when asking:
1. Can I afford to pay that amount
2. Am I happy to pay that amount
3. Can I ignore what is happening to interest rates around me
As mentioned before fixed rates are an excellent way of being able to budget. This can be especially important in the business environment, such as being a Landlord, where cash flow is king, but too many people secretly treat fixed rates as a gamble against the money market and are left disappointed when it doesn’t pay off. What you need to remember is banks do not offer fixed rates thinking they will lose money and rarely do.