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To fix, or not to fix, that is the question

The story

Patrick’s fixed interest rate loan term was due to end in January 2015.  In December 2014 Patrick contacted his mortgage adviser, George, to refix the loan.  Emails passed between Patrick and George comparing the interest rates for 2-3 year fixed interest terms and cash contributions offered by different banks.  Patrick’s existing bank was not prepared to offer a cash contribution.  A competing bank offered a comparable interest rate to Patrick’s existing bank, plus a cash contribution of $6,000.

In early January 2015 George and Patrick discussed the offer.  Patrick said that during this conversation George told him interest rates would definitely be going up, and he should accept the three year fixed interest rate.  Patrick accepted by email the three year fixed interest rate.



By August 2015 it was clear interest rates were going down, and Patrick complained about George’s advice to fix for three years.  Patrick asked his bank how much it would cost to break the fixed interest rate term and was given an indicative quote of $15,000.

George said he did not tell Patrick to fix the interest rate because interest rates would be going up.  George said Patrick came to him wanting to fix his interest rate for either two or three years and various options were put to Patrick.  They did not discuss a floating rate.  George said Patrick is an experienced businessman and borrower.  George did not consider it his place to offer an opinion about which term to accept.


FSCL’s review

It is always difficult to form an opinion about what may or may not have been said in a verbal conversation.  In this case the email conversation between the parties showed that Patrick came to George wanting to fix his loan for either two or three years.  Patrick was also motivated by the $6,000 cash contribution, which would not have been available on a floating rate.



We had insufficient evidence to find that George told Patrick to fix the interest rate for three years because interest rates would “definitely” be going up.  We suggested that Patrick withdraw his complaint.

Patrick acknowledged he could not prove George’s advice and reluctantly agreed to withdraw his complaint.



This complaint provides a timely reminder to all mortgage brokers when advising customers about interest rate trends. 

Interest rate movement is impossible to predict.  If a mortgage broker is prepared to answer their customer’s question we suggest they:

  • make it very clear they can only give their opinion
  • interest rates are notoriously difficult to predict, and their opinion could be wrong
  • refer their customers to other commentators, and allow their customer to draw their own conclusions
  • provide options, perhaps to fix part of the loan, while allowing part to remain on a floating interest rate
  • warn customers that if they fix the interest rate, and then change their minds and want to end the term early, the early repayment cost could be thousands of dollars.