Home loan customers eyeing up a fixed-rate mortgage are being advised to make the switch sooner rather than later, as banks are already hiking rates in response to moves from the Reserve Bank of Australia.
The Reserve Bank held the official cash rate at 0.1 per cent at its monthly board meeting in June, meaning variable home loan customers can rest easy for the time being.
The Reserve Bank has closed down a term funding facility that was lending money to banks, building societies and credit unions at just 0.1 per cent interest, meaning fixed rates are on the rise.
Closing down the term funding facility increased longer-term funding costs for lenders, and they have already started passing on those costs to borrowers through hikes to fixed-rate mortgages.
Beware the fixed-rate rise
Over the past month, 19 lenders have hiked at least one three-year fixed rate, while 17 lenders have hiked at least one two-year fixed rate. To be clear, many lenders have also cut rates on these products – and borrowers can still find three-year fixed mortgages and home loans in total charging less than 2 per cent interest.
The broader trend suggests fixed-rate mortgages are more likely to rise than fall over the months ahead.
Four and five-year fixed rates have already bottomed out, provided there’s not another national emergency that causes the RBA to cut the cash rate below zero. At the beginning of 2022, there were 32 four-year fixed rates under 2 per cent. Now there are none.
If you wanted to fix all or some of your home loans, then it makes sense to do so sooner rather than later. It’s worth noting that fixed-rate mortgages aren’t for everyone. They often provide no access to offset accounts, charge hefty break fees for exiting early, and typically have caps on additional repayments that can prolong the length of your loan. The landscape also changes significantly when these loans reach their expiry date.
That’s not to say to stick to a variable loan – rather take into account these additional factors when weighing up the pros and cons of fixing your loan. Some people like knowing exactly how much they will have to pay each month. This peace of mind comes at the expense of greater flexibility and limits how much you can make in additional repayments.
As for borrowers sticking with a variable rate, the Reserve Bank has suggested it will not lift interest rates until 2024. While that means your mortgage rate is likely to remain low for the foreseeable future, interest rates will inevitably rise at some stage and it pays to be prepared.
If you have concerns about the current fixed and variable loan rates, Micah Finance Solutions can find the best options to suit your financial needs. Schedule a Free Consultation with us and we’ll be happy to assist you.