The recent decision from the RBA to hold interest rates for June at 4.5% has homeowners breathing a sigh of relief. But while the end of successive interest rate rises may be in sight, experts are warning borrowers against resting on their laurels.
While interest rates may have stabilised, experts are predicting that the RBA will lift the rate by 0.5% by September 2010, resulting in a variable rate of around 7.63%. With average repayments currently at $4044 for a $600,000 mortgage, a hike of a further 0.5% would result in $204 in additional repayments to be paid each month.
Should you fix your loan now to escape further rate hikes? Our experts suggest that the time to fix may have passed.
“Stay variable” says Nicholas Gruen of Peach Home Loans. “Expectations of swings in interest rates often overshoot – and are captured in fixed rates,” he explains.
Shane Oliver from AMP Capital Investors believes that the time to fix is gone. However, he adds that split loans can provide some relief. “Homeowners ideally should have a split of fixed and variable. Fixed rates are only just above variable rates but variable rates are still likely to rise above current fixed rates within the next six months,” he says.
Lisa Montgomery from Resi Mortgage Corporation agrees. “It’s fair to say the boat for fixing a loan has already well and truly sailed and with interest rates expected to level out by the end of the year back to pre-GFC levels, we would encourage homeowners to stay with a standard variable rate mortgage, unless there’s a compelling reason why they felt they had to fix for a certain period of time in an effort to lock in costs.”
Complex and uncertain international funding markets are causing fixed rates to price in more risk than usual, explains Stephen Porges from Aussie. He says that while fixing may help in guaranteeing certainty for some borrowers, particularly those who will have changing circumstances such as starting a family, the best option remains sticking with a variable rate and if necessary, a good option is to split. “Variable is the way to go over the long term as betting against the banks is usually a losing strategy,” says Porges.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan