The time to switch to fixed interest rate loans is now. How do we know? Global interest rates are rising. Which means banking costs are rising too, and that means our own interest rates are likely to follow soon.
“Our clients often say they don’t want to fix interest rates because they think, as soon as they do, rates will go down. But that’s looking increasingly very unlikely,” says Todd O’Neill. Todd points to the fact that economists believe the big four banks will raise their interest rates*, irrespective of the Reserve Bank’s (RBA) official cash rate remaining unchanged.
Indeed, Suncorp, Credit Union Australia, Macquarie Bank, AMP, ING, Bank of Queensland and others have already raised their rates on some of their mortgage products.
Todd explains that borrowers often respond too late. “The media’s focus on the RBA Cash Rate rather than loan interest rates is the reason why people are uninformed, and that’s why they respond too late. The time to act is now.”
But how much difference does an interest rate rise of, say 0.7% really make to your bottom line?
A lot, is the answer. Rate increases that appear insignificant can add tens of thousands of dollars to the cost of your mortgage. Remember, when the variable rate starts to rise, it happens quickly and by then, longer term fixed rates will already be higher.
Fixing Your Interest Rate
3-year fixed rates from 3.79% to 3.89% are available from a number of lenders. And there are 5-year rates on offer, from 3.98% to 4.39%. Loan availability depends on your circumstances.
For the past 18 months the BBSW (Bank Bill Swap Rate) has been reasonably stable at around 20 points above the RBA Cash Rate. But recently it jumped to around 50 points above the Cash Rate.
When you consider that local banks borrow around 40 per cent of their total funding from this short-term market, it’s easy to see what the effect will be – increased borrowing costs for banks and businesses. And that’s regardless of changes in official rates.
Right now we’re at the early stage of a curve of rising banking costs. Yes, it takes time for them to filter through. But interest rates are on the rise, so those who take action now will be ahead of the curve. And they’re the ones who will benefit most.
In Summary:
- Rates are increasing.
- Review your loan.
- Small interest rate movements can cost or save you thousands.
- Now is the time to fix rates.
* finder.com.au