Hold your horses on fixing loan rate

There has been much banter in the financial markets about rates as the RBA continues to lift interest rates against its earlier suggestion that rate rises weren’t forecast till late 2022 or early 2023.

The move is the second 50 basis points hike in a row and followed the 25 point hike in May, taking the official cash rate to 1.35 per cent.

The latest increase will see a regional homebuyer who bought at the current median price pay an additional $143 per month on their mortgage.

Mortgage holders considering fixing their home loan interest rate at the current rates on offer may need to think twice before doing so, according to a national mortgage broker.

Zippy Financial director and principal broker Louisa Sanghera said that the current fixed rate offerings are often significantly higher than variable home loan rates.

She said this meant that some borrowers may lose out over the long-term if rates didn’t peak above their fixed rate mortgages.

“The real winners were those property owners who fixed their interest rates last year,” Ms Sanghera said.

“Anyone wanting to fix the rates on their mortgages ideally should have done so last year when rates were in the one to two per cent range.

“Fixed rates are already in the four to six per cent range, depending on the fixed loan term, which is generally well above the current variable option in most cases, even after the three successive cash rate increases recently.”

Ms Sanghera suggested that borrowers review their individual circumstances and seek appropriate advice before deciding whether fixing their interest rate was the right option for them at the present time.

“Borrowers should consider whether locking in these significantly higher rates is likely to benefit them in the long-term because no one knows when the current rising interest rate cycle will end,” she said.

Ms Sanghera said that higher mortgage repayments were only starting to flow through to borrowers following the May increase given the delay in implementing the changes by lenders.

“The RBA won’t have seen any real benefits from the first rate rise yet, such as reduced spending, but they need to increase rates gradually so that borrowers can adjust to the new repayments,” she said.

Ms Sanghera said that it was a good idea for borrowers to assess their personal cash flow and discretionary spending, and seek expert advice when needed, to ensure their budgets can adapt to higher mortgage repayments.

“It’s vital for borrowers to understand their household budgets to ensure they are well-placed for future interest rate adjustments,” she said.

“This may include reducing discretionary spending now if they are worried about their cash flow, and potentially refinancing for a better home loan deal if and when is appropriate for them.”