While fixing your rate brings peace of mind, given interest repayments will not vary over time, it can also be a serious trap if interest rates decrease significantly as you aren’t able to take advantage of these savings.

Take the period between 2007 and 2008 for example, when the Reserve Bank of Australia’s (RBA) cash rate was around 7.25% and many feared that rates would hit double digits. If you were to lock in a fixed rate during this period you would have missed out on the considerable interest savings generated when cash rates actually fell to around 3% in 2009 and since then have stayed below 5%.

Trying to pick the best time to fix your home loan rate is often fraught with danger as the banks factor in their own predictions of what the cash rate will be when setting fixed rates for home loans.

At the moment the major banks are factoring in a rate cut of around 50 bps, taking into account a number of economic issues such as: the US economic outlook, ongoing European debt problems and most importantly, Australia’s inflation rate creeping close to 3%, which is a key indicator for a rate cut.

In my opinion, keeping your loan variable is the best option as this way you are not locked in and have the added benefit of making additional repayments to your home loan (often with a fixed rate you are prevented from making additional repayments). While a fixed rate will provide certainty, if rates move against you, it can be very costly.