With Interest Rates Rising, Is It Time To Fix Your Home Loan?


Last year Australian homebuyers saw some of the lowest and most competitive fixed mortgage rates ever, but that is slowly changing.

This year, fixed mortgage rates have generally rebounded, with large banks increasing first and a range of smaller banks and institutions following in kind.

Two moves appear to have sparked the latest wave of increases – the APRA maintenance buffer bump and the Reserve Bank dropping its 2024 forecast of a cash rate hike, explained in more detail here.

The rate increases on home loans have been primarily at fixed rates, with variable rates either being reduced or unchanged.

As a result, the pendulum could shift back to variable rate home loans – fixed loans are now also a smaller proportion of the market than just a few months ago, with market share down 1.5 percentage points from July to September.

ANZ senior economist Felicity Emmett said interest rates could rise significantly in the coming months.

“Fixed mortgage rates have been increasing for a few months and are expected to increase further. Two- and three-year market rates have risen dramatically as markets reflect stronger-than-expected economic and inflation data… suggesting that fixed mortgage rates are likely. increase quite rapidly over the next few months, ”Ms. Emmett said.

“In the two years to June 2021, the average discounted variable mortgage rate fell by 90 basis points [0.90%], while the three-year fixed rate fell by 170 basis points (1.70%). This created an unprecedented spread between fixed and variable rates, peaking at 150 basis points (1.50%) in March of this year.

“A rise in fixed mortgage rates is more important this cycle. Fixed mortgage rates have been significantly lower than variable rates throughout the pandemic, resulting in a significant shift in their use. Nearly half of new borrowers are now choosing fixed-rate mortgages, up from around 15% before the pandemic.

“It’s true that variable rates have fallen slightly in recent weeks, but the lowest mortgage rate available to new borrowers is expected to rise by around 50 basis points over the next few months.”

RentBetter chairman Tony Breuer said the interest rate cycle had reversed and painted the picture for real estate investors.

“For investors who have not yet set a rate, this will mean a sharp reduction in free cash flow in the first place,” Breuer said.

“With interest rates starting so low, even a small increase in rates is a very large tax percentage – for example, an increase of 0.5% from a base of 2.0% represents an increase. 25% of interest charges.

“This will put a strain on the cash resources of many landlords and focus their efforts on maximizing rental flows and reducing costs such as insurance, repairs and agent fees.”

Fixed mortgage rates set to rise sharply: ANZ

ANZFixedRates.jpg

So, is it time to fix it?

Non-bank lender WLTH’s loan officer, Catherine Mapusua, said that even with rising interest rates, borrowers need to make sure a fixed-rate loan is right for them.

“[Lenders] may restrict additional reimbursements and may charge a break fee if there is a change in your situation, ”Ms. Mapusua said.

“If you change banks, sell the property, or have to cut your repayment rate, you risk costs that can range from a few hundred to several thousand.

“For people with an adjustable rate mortgage, you may want to consider setting a portion of your interest rate as soon as possible to ensure you can keep making payments.

“If you have a fixed term interest rate, consider paying a lock-in fee. This can help you secure your offered fixed rate at the time of settlement, protecting you from rate increases before the loan is advanced.

“Given the rate at which rates are rising and the challenge of predicting the rise, talk to your provider to walk you through a ‘stress test’ to determine what your future financial situation will look like.”

What could rising interest rates mean for real estate prices?

With the APRA service buffer bump expected to cut borrowing capacity by 5% – and in some cases much more – and interest rates on the rise, Breuer said there could be have a decline in house prices.

“Historically, there has been an inverse relationship between interest rates and real estate prices. There is not much you can do about it other than sell the property if you have the conviction to do it, ”he said.

“However, the most important thing is to make the investment work in terms of cash flow.”

CoreLogic data released last week shows house prices continued to climb 1.5% in October, up 21.58% nationally in the past 12 months.

Ms Emmett also said rising interest rates could be more of a hand brake than tightening APRA lending standards.

“Lower borrowing capacity and a slower pace of house price gains should spill over into weaker credit growth,” she said.

“This is not an undesirable outcome given regulators’ concerns about the growing risk of heavily indebted households. be certain.”


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Buying a home or looking to refinance? The table below shows home loans with some of the lowest interest rates on the market for homeowners.

Lender

Rate type Gap Redraw Ongoing charges The initial costs LVR Lump sum reimbursement Additional refunds Pre-approval

Variable More details
LIMITED TIME OFFER

Smart Booster real estate loan at variable discount rate – 2 years (LVR
  • Fast turnaround times, can meet a 30 day settlement
  • For purchase and refinancing, minimum deposit of 20%
  • No ongoing or monthly fees, add compensation for 0.10%

Variable More details
100% FULL ACCOUNTNO APPLICATION FEES OR CURRENT FEES

Low rate home loan – Premium (principal and interest) (owner occupied) (LVR
  • No upfront or ongoing costs
  • 100% clearing account
  • Additional refunds + reprint services

Variable More details
REFINANCING IN MINUTES, NOT WEEKS

Nano Home Loans Variable Owner Busy, Principal and Interest (Refinancing Only)

  • Refinancing only. Fast online application
  • No Nano fees. 100% free sub-account clearing
  • Mobile app, Visa debit card and instant payments
Variable More details
NO INITIAL OR ONGOING FEES

Owner Occupant Accelerate – Celebrate (LVR
  • We reduce your rate based on the amount you have repaid on your loan
  • Automatic rate matching
  • No upfront or ongoing costs


Photo by Waldemar Brandt on Unsplash

The entire market was not taken into account in the selection of the above products. Instead, a smaller part of the market has been envisioned, which includes the retail products of at least the Big Four Banks, the Top 10 Client-Owned Institutions, and Australia’s largest non-banks:

Products from some vendors may not be available in all states. To be taken into account, the product and the price must be clearly published on the website of the supplier of the product.

In the interest of full disclosure, Savings.com.au, Performance Drive, and Loans.com.au are part of the Firstmac group of companies. To learn more about how Savings.com.au handles potential conflicts of interest, as well as how we are paid, please click on the links on the website.

*Comparison rate is based on a loan of $ 150,000 over 25 years. Please note that the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as draw charges and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan.

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