Are interest rates starting an upward journey?
The past month has seen a spate of what the industry calls ‘out of cycle rate rises’. This means banks and lenders increasing interest rates without an upward movement in the cash rate from the RBA.
This shouldn’t surprise us. Banks and lenders freed themselves from the shackles of RBA driven rate changes during the GFC and now move them as needed.
We have seen an interesting mix of changes. There have been big jumps in some banks fixed rates, up to 0.6%.Others have increased investment loan rates and not home loan rates. Others have applied an increase across the board on all variable rate loans. Some haven’t changed rates, at least not yet.
To date most of the increases to variable rate loans have been small from 0.07% to 0.15%.
We have to consider that we are moving from a very low base. An increase of a full one percent would still see most home loan borrowers with rates around 5 %. We will see breaking news of borrowers going into hardship because of increasing interest rates. It will affect a small number of people who perhaps should not have gotten a home loan in the first place. They’re not going to get any cheaper than they are now.
There will be an increase in the number of people taking fixed rate loans either as new loans or fixing their current loan. Some three year fixed rates are still under 4% and five year fixed rates up to 4.6%. If you want peace of mind and security of repayments for a few years, consider fixing part or all of your loan. Will you ‘beat the market’, I don’t know, but you will sleep easier at night.
Main message; Don’t panic, keep on paying extra into your loan, while rates are low. If you want certainty consider a fixed rate loan, at least for a portion of your loan.
Please contact me if you want individual advice. paul@halogenhomeloans.com.au
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