For many qualified borrowers, there has never been a better time to have a mortgage, thanks to Australia’s historically low interest rates.
While pigs flying backwards are more likely than a return to the record high interest rates nudging 20% of the early 1990s, shrewd market watchers will understand bond rates are on the rise, which will likely put some pressure on lenders to increase mortgage interest rates.
The facts are that despite the government providing supported funding to the financial sector, the majors and the second-tier lenders such as the credit unions still borrow a significant proportion of their funds from overseas sources. This means they must compete for funds internationally. While Australia’s strong economy and currency and stable COVID-19 response help make Australia an attractive prospect for global investors, our lenders may need to increase rates as pressure on the cost of funds start to rise.
Is it time to fix mortgage interest rates?
Given the expectations for rate rises, now is an excellent time to consider fixing all or part of your mortgage repayments. Moreover, with historically low rates, there is ample logic in this strategy. Even with the current demand for bonds and the increasing interest rate environment, I would have expected that our economic recovery would push the Reserve Bank of Australia (RBA) to increase rates at least once this year, and now it may be more.
Besides, the real benefit of a fixed rate strategy is the certainty it provides. If there was one lesson to take from last year, it’s that nothing is inevitable, and we must plan for change. At the same time, we have all had the opportunity to add some certainty to the cost of our housing for up to four years at under 2%. For what it’s worth, I don’t see any significant risk to this opportunity, even with the current pressure on interest rates.
Hedging your bets
While fixing your mortgage interest rates provides a hedge against a possible rate hike, fixing all or part of your loan can limit your ability to pay down the loan. That said, there are some lenders with fixed loans with unlimited additional payments, but most lenders offer less flexible fixed loan arrangements.
So, if you have the capacity to pay down a more considerable amount of money on your loan, then having a split loan with part of the mortgage paid back with a fixed rate and the balance with a variable interest rate offers you the best of both worlds. Simply put, you can enjoy the security of a fixed rate on most of your borrowings and the versatility to apply additional savings by making extra repayments on the variable portion of the mortgage.
A finance broker can help you navigate the mortgage maze
A financial specialist such as Our Broker has a wide range of information about the rates and flexibility of fixed-rate products across a broad range of lenders. This access to information enables us to identify the right mix of fixed and variable interest rates, flexibility, and fees to give you the most suitable mortgage for your situation. We can also provide you with some certainty on you home loan repayments.
To find out more about the right home loan for your situation, contact Our Broker on 1800 913 677 or email us at [email protected] to make an appointment.