With electioneering in full-swing, it’s no surprise that housing affordability and the prospect of interest rate rises are at the top of most Australians’ minds.
Homeowners should be watching the timing of what seems to be an inevitable rate rise.
The Big Four banks are suggesting it’s coming as early as June. But the Reserve Bank of Australia (RBA, which is the final decider, is being coy about a date, having previously suggested it might move later in the year.
Either way, you should be asking yourself whether it’s a good time to lock-in your interest rate for a year or more, and head off the prospect of several rate rises.
As an experienced real estate agency, we understand the financial pressures that higher repayments can put on a family. So, below, we’ve outlined a few issues to help you consider a short-term financial strategy.
We also recommend that you consult with your lender or broker before making any decision.
Rates already moving
Lenders are acting independently of the Reserve Bank. They’ve been edging up the cost of one-year fixed-rate mortgages for months. Right now, one-year rates vary from 1.99% to close to 5%.
Shop around
While a low rate can be important, a mortgage is more than a rate. The terms and conditions of the loan are also vitally important. Fixed rate loans tend to lock you in for a set period. A variable rate gives you more flexibility. Discuss the small print with your lender or broker.
Term of the fixed rate
Make sure you are diligent with your research and questions before making any move. You can extend a fixed-term rate far beyond a year, but it usually comes with conditions and a slightly higher interest rate.
Expiry of the term
Make sure you’ll be in a position to handle higher mortgage payments at the end of your fixed rate period. If you find a sweet deal, the unfortunate reality is that it won’t last forever.
Business as usual
When your fixed-rate term expires, you can arrange to make payments above the minimum requirement. So long as your loan permits, you can reduce your interest charges and pay the debt early. It’s best to organise an increase in payments when your interest changes.
Fair deal
If you began your mortgage with a low-equity loan, you’ve probably been paying a higher-than-standard interest rate. This occurs when you exceed the 80% loan-to-value ratio (LVR). But guess what? Your home has probably jumped in value in the past two years. So, ask your lender to re-evaluate your LVR to see if you qualify for a lower interest rate.