 Fixed rate rush
Tuesday's official interest rate rise has prompted many homeowners to rush off and fix their home loan rate.
When the Reserve Bank of Australia moved to increase the official cash rate by 25 basis points to 3.24 per cent, home owners took one look at their mortgage rate, considered there may be future rate rises in the coming months, and are now rushing to secure a fixed rate.
However, Mortgage Choice says this may not be the right way forward. Chris Vitale says home owners may want to think again. Variable rate mortgages are likely to jump up by at least 25 basis points now, although none of the banks have moved yet to lift rates. But be sure that they will, and with the rate increase a standard variable home loan rate will now be around 5.7 per cent, while a fixed rate will now most likely jump to about 7.6 per cent.
Mr Vitale says there has been a massive increase this week in the number of people asking about fixed rate home loans, but he says there are would need to be at least eight more rate hikes to break even.
"The banks are ahead of the game having increased fixed rates months ago."
"If you were going to take a fixed
rate now, you would have to believe that interest rates were going to
increase by significantly more than two per cent in the next 18
months," he said.
He also says that the era of 6 per cent fixed rates are long gone but rates are still fairly low compared with the highs seen in 2008.
Reserve
Bank Governor Glenn Stevens has not been shy in saying this weeks rate rise is just the first of many hikes to come in the next 18 months, although he does concede rises will come "gradually."
Property insiders are concerned that more rate rises could mean the slow housing recovery seen so far this year could be affected.
Potential borrowers need to factor in future rate rises when considering a mortgage loan and budget for an extra 2 per cent on top of current rates. Some homeowners could be cautious and choose a split home loan, choosing to protect half of their loan on a fixed rate while leaving the remaining section at a variable rate. With the official rate rising 25 basis points this week, home loan rates could rise by the same. This increase would result in an extra $60 per month on a $400,000 mortgage.
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