Interest Rates are on the Rise

For the first time in a long time, we are now in a market where rates are set to rise.

Since late last year, banks have been preparing for this time, by increasing their fixed interest rates. At present, for most lenders, fixed rates are considerably higher than their respective variable rates. This is the banks predicting what the variable rates may end up rising to, or beyond.

Today it is expected that interest rates will increase. And according to the “experts”, there will be more rate rises along the way. For those who have not experienced a rising rate market before, the RBA (Reserve Bank) announces at the beginning of each month if the cash rate will rise. At that point, the banks each make a decision whether to pass on the full increase, part increase, or an increase higher than the percentage increase set by the RBA. The bank that you are a customer of will then send you a notification of the variable rate increase, and the date at which that higher rate will take effect and your loan repayments will increase.

As an example, if you have a loan of $500,000 over a 30 year loan term, and your variable rate increases by 0.25%, your monthly loan repayments for a principle and interest loan will increase by around $60 if your current interest rate is 2.25%, and around $75 if your current interest rate is 3.5%.

The above is not applicable to fixed rates, as you have locked in a rate with the bank to expire on a specified date. So you will continue to pay the agreed fixed interest rate until the term expiry, regardless of the RBA announcements and variable rate increases.

If you currently have a variable rate and are concerned about rising interest rates, and would feel more comfortable having a fixed rate, speak to your bank about the current fixed rates and if you can switch if those numbers make more sense to you. For my clients, give me a call or send an email and I will provide you with the fixed rates currently on offer with your existing bank. I note that in the majority of circumstances, a re-assessment of your loan is not required to change from variable to fixed, it is just a few forms to sign.

You may instead decide that as fixed rates are higher than variable, you’d prefer to stick with a variable option, and consider moving to a cheaper variable rate with a different lender.

I note that brokers are not permitted to give financial advice on fixed vs variable, so we can only provide options for you to assist with your decision to make changes to your loan.

If you would like to find out your options to refinance to another bank for potentially cheaper options, give me a call or email to discuss on 0414670151 or jennifer@jblhomeloans.com.au