Pick up a newspaper, flick on the nightly news or talk to one of your neighbours, and the state of current interest rates will undoubtedly get a mention. There’s plenty of talk that interest rates are heading up, perhaps even prior to Christmas, but according to some experts, that’s no reason to panic.
“People are really nervous about where interest rates are going at the moment, because there’s a lot of talk in the media about interest rates going up – and we know that the RBA is actually predicting that interest rates will go up between now and the end of the year,” explains Helen Collier-Kogtevs, director of Real Wealth Australia.
But Collier-Kogtevs is quick to point out that interest rates are an inevitable part of life. “They’re just like paying your taxes – we all have to pay them,” she says. “Yes, we all want to minimise our expenses, but at the same time, (interest rates) are a reality and we’ve got to live with them.”
She goes on to explain that when we look at interest rates over a complete property cycle of 7-10 years, it’s clear that interest rates go up and down.
“They’re forever fluctuating, but when you average out the interest rate over a property cycle, it’s about 8.5%,” Collier-Kogtevs explains.
“If you look at interest rates right now, the variable rate is around 6.7%. So if interest rates are going to go up by 0.25%, and the average is 8.5%, is that really a big concern?”
Her point? While we’d all prefer to save a dollar where we can, there’s no point in panicking over an expense that we can’t avoid.
We also have to remember that current mortgage rates are still sitting at historically low levels.
“I just want to put this into perspective, because if the average is 8.5% and you’re paying less than that, then you’re well ahead of the game,” she says.
It’s when interest rates nudge above the 8.5% mark that you need to be concerned, Collier-Kogtevs adds, so she urges borrowers not to panic about the ongoing media hype.
For those who are worried about their ability to make their mortgage repayments if interest rates increase, then now is the perfect time to look at fixing all of part of your mortgage.
“With fixed rates now running below standard variable rates, it makes sense for homeowners to fix a portion of their mortgage,” confirms economist Shane Oliver from AMP Capital Investors.
Collier-Kogtevs suggests that you look at long-term interest rates of 3, 5 or 10 years to ascertain whether they’re less than 8.5%.
“At the moment 3 year interest rates are around 7.3%, and that’s still well ahead of 8.5%,” she says.
“Just make sure you have a look at the different loan products and see what’s available to you, before you actually make a decision to move forward.”
If in doubt, speak to your lender or mortgage broker for a financial health check, and don’t forget to use Your Mortgage’s calculators and other resources to help you assess your options.