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Should you fix, or stay floating?
This calculator can help you assess whether you should stay on a floating mortgage rate or change to a fixed rate.
It takes into account where the markets expect the Official Cash Rate and floating rates to go over the next couple of years and allows you to work out whether staying floating is cheaper than fixing at a certain rate for a certain time.
It works out the cost of floating using the assumed size and timing of rises in the OCR that the financial markets assume. It is updated daily.
However, it is only designed to 'help' you make a decision. It does not take all factors into account. Some of those other factors will be non-monetary, some specific to your personal situation.
For a full and proper assessment related to your specific circumstances, you should seek professional advice from a qualified person.
Don't make a decision based solely on this tool. It is designed to help, not to decide. It only factors in the technical rate outlook data, nothing more.
How it works ...
At any point in time, certain things are known. These include current wholesale rates, current mortgage offer rates, and what the futures market is pricing.
Markets aren't really 'predicting' what a rate will be at a point in the future; what they are saying is, "given the circumstances today, the balance of opinion in the market is that a rate of x% in y months can be expected". Tomorrow, this same approach could well give a different outcome, equally valid based on tomorrow's circumstances. Futures market participants will continuously adjust their positions as these changes happen. So, they are not predicting a committed rate.
It is these 'futures' positions that are used in this calculator. These positions are updated daily, so this calculator may well give different answers tomorrow.
Therefore the tool looks to make a calculation based on the best data we have today.
It calculates the monthly payment cost for two scenarios over a 24 month future period, and compares the total payment cost of each, one floating, one fixed.
If you use a one year rate, the tool assumes at the end of the period you will enter into another one year fixed rate mortgage at a new implied rate based on the difference between today's one and two year swap rates.
If you use a two year rate, the tool uses the 2 year fixed mortgage you input.
The assumptions used ...
This calculator is designed to be used by someone who is thinking of changing from a floating rate mortgage to either a one or two year fixed rate mortgage. (Don't use it for any other purpose.)
Payment calculations are based on a standard 20 year table mortgage taken out 'now'. If you have actually taken out a mortgage earlier (or over a different term than 20 years), the absolute values in your case may be less, although relativities should be similar.
This tool assumes the margin is constant between the floating rate and the 90 day bank bill rate - in other words, we are changing the future variable rates by the same amount as the 90 day bill rate changes. It is assumed that the 90 day bill rate is a relatively accurate predictor of the OCR and therefore the floating mortgage rates. This is usually the case and has been over a long period, but it is no certainty.
If you use a one-year rate, the tool assumes at the end of the period you will enter into another one year fixed rate mortgage at a new implied rate based on the difference between today's one and two year swap rates.
Other resources ...
You can compare two mortgage calculation scenarios very easily, and with substantial flexibility, by using our powerful mortgage calculator. This allows you to set any key factor and see what the other factors must be.