Is It Time To Fix The Interest Rate On Your Home Loan?
The Australian real estate market is still hot but it is starting to lose momentum and the question I am asking myself is: – is it time to fix the interest rate on my mortgage?
This is a difficult question and the correct answer may vary from person to person and loan to loan, but I would say to anyone who has borrowed too much and is considering keeping their home for a long time, that setting your rate might be a good idea.
Today the Reserve Bank is meeting and what it says about the economy will lead to speculation about when interest rates will rise. But one thing is certain, economists and money market experts believe the first RBA rate hike will be before 2024. Most experts believe banks will raise mortgage rates before the central bank raises the rate. official rate above its historically low level of 0.1. % level.
I know the RBA keeps saying that the first key rate hike won’t come until 2024, but money market experts disagree. They predict that the first hike will be in May of next year. They might be a bit early, but the end of 2022 or the start of 2023 looks very likely.
If you need help figuring out how interest rate hikes might affect you, watch this from the australian Wealth Editor-in-Chief James Kirby: “The Canstar Group modeling suggests that even a slight increase in official cash rates, which are under increased pressure from bond market traders this week, will dramatically increase the costs of borrowing.
The comparison service suggests that an average mortgage borrower currently on an amount of 3.09% (principal and interest) facing an increase in the official cash rate to 1% (compared to 0.10% currently) should pay $ 561 more per year, month on a million dollar mortgage.
The average borrower has a 3.09% home loan that could go as high as 4%, probably over two years from 2022. That would make a 3- or 4-year fixed rate home loan worthwhile.
UBank has a 3-year fixed rate mortgage at 2.09%, with a comparison rate of 2.19%. Macquarie has a 2.59% home loan fixed over three years with a comparison rate of 2.29%.
On a variable rate home loan, the comparison rate tells you the actual rate you’ll pay with fees and charges in addition to the interest rate, but fixed rate home loans can be confusing.
I would say the best thing you can do is go to a website like ratecity.com.au and see what you would pay per month with a 3- or 4-year fixed rate home loan, versus what you’re paying off with your current variable rate home loan.
If it’s lower or similar, you may want to consider freezing your payments so you don’t get stung by rising interest rates and higher repayments.
But remember, when you set a rate, the bank may charge you a fee to break that loan if you want to sell the property before the loan ends. In addition, once the three or four years have passed, you will benefit from a more expensive home loan.
Another problem is that you usually cannot pay off the loan at a faster rate and that is why some borrowers fix half of their loan and keep half variable. This is called a “cocktail loan” and it means that all interest rate increases will be halved because half of your loan is at a fixed rate.
The average Sydney home loan is $ 750,000 after house prices rose 21% last year and regional prices rose 24%. The median home price is now valued at $ 1.1 million.
Patrick Commins at Oz looked at borrowing across the country. “The average new mortgage commitment in ACT was $ 555,000, just below the national average of $ 574,000,” he revealed. “The lowest average new loan amount in September was in NT and Tasmania, at around $ 400,000.”
ABC economists believe house prices will rise 7% nationwide next year. It could be less if interest rates rise and APRA makes borrowing more difficult for homebuyers.
Meanwhile, Tapas Strickland, who is NAB’s director of economics, predicts the cash rate will rise from mid-2023, reaching 1.75% to 2% by the end of 2024. S ‘He’s right, maybe a four-year fixed rate might even be better for those who don’t plan to sell their property within that time frame and fear being over-leveraged with potential increases in repayments.
Ratecity shows that there are four-year fixed rate home loans, but these interest rates are higher than the three-year fixed rates.
By the way, it might be better to downgrade your current variable home loan to a much lower rate because when rates go up you could still have lower monthly payments than you currently have.
Ultimately, if you’re worried about interest rate hikes, it’s time to do your homework to protect yourself from an upcoming cash flow crisis. And if you don’t have the confidence to do it on your own, try a few mortgage brokers and use what you pay now per month with what you’ll pay with a fixed rate loan as a starting point before you take your mortgage. decision. .
As I always say: “Anything worth doing is worth doing for the money!” “