What’s going on with interest rates

Banks are increasing their fixed rates and decreasing their variable rates. What does that mean for home loans applicants?

In the last month, sixteen lenders have increased their fixed-rate home loans, including all big four banks.

The ANZ was the last of the big four to jump on the bandwagon announcing that changes to its fixed rates were coming into effect on 12 November.

The Commonwealth Bank of Australia’s increase to a selected number of its home loans came into effect on 5 November with some rates rising by 65 basis points or 0.65 per cent.

Westpac has increased its fixed-rate home loan three times in the last month.

At the time of writing, its one and two-year fixed rates had risen by 0.25 per cent, its three-year fixed rate by 0.30 per cent, its four-year fixed rate by 0.20 per cent and its five-year fixed rate by 0.10 per cent.

Fixed interest rates across NAB’s fixed home loan portfolio rose by up to 51 basis points, or 0.51 per cent, for the fifth time in 2021.

On the other side of the coin, we are seeing several lenders drop their variable home loan rates.

For example, ING Australia has recently confirmed it would be reducing the variable rates to a select range of its owner-occupier and investors loans. The changes came into effect on 11 November.

ME Bank has recently confirmed it was implementing cuts to the variable rate of its Flexible Home Loan with Member Package.

This trend of increasing fixed rates and dropping variable rates might be rooted in the growing speculation that the cash rate will soon increase.

A cash rate is the interest rate the Reserve Bank of Australia charges commercial banks for loans.

Although the Reserve Bank of Australia confirmed that the cash rate would remain at 0.1 per cent for November, these fixed-rate hikes indicate that most lenders believe Australia’s cash rate could rise earlier than expected.

What does that mean for home loan applicants? Let’s review a few things first, shall we?

First off, what is a variable interest rate?

A variable interest rate is a loan with an interest rate that is influenced by market conditions. If cash rates go up, so do your repayments. If they go down, your repayments will, too.

So, what’s is a fixed interest rate?

That name says it all. Fixed-rate loans will have a ‘locked’ rate for a certain period, usually between one and five years.

With a fixed interest loan, you will know exactly how much your repayments will be. These types of loans offer certainty and security.

The downside is that your repayments won’t decrease if interest rates fall.

Now, you might be thinking, “So, if the banks believe Australia’s cash rate will rise, I should lock in my fixed rate right now.”

Well, not exactly. Unfortunately, there is never a one-size-fits-all answer when it comes to financial decisions.

There are various factors you need to take into consideration, such as available options to your financial and personal circumstances.

– BY LEIGH DELEDIO

DIRECTOR, UFINANCIAL