Should you fix your home loan rate now?
The events of the past year have prompted a lot of current and would-be mortgage holders to consider whether they should rush to lock in their loan interest rates with a fixed product.
Rates have tumbled thanks to multiple cuts by the Reserve Bank and the fixed rates on offer from banks and other lenders are pretty attractive.
When in the past have you been able to snap up an interest rate starting with a two? It’s pretty enticing, especially for those Australians looking to save serious cash and ensure budget certainty for the next few years.
But is now the time to do it? Are rates as low as they’re likely to go or could there be more cuts on the way?
Banks aren’t charities
When you spend most of your days monitoring what Australia’s lenders are up to, you begin to develop a little bit of a sixth sense for coming change.
Whenever a big bank comes out with a new fixed-rate interest product, particularly those with a shelf life of three or more years, it’s usually a sense that something else a bit more attractive is just over the horizon.
Banks aren’t generous. They’re not charitable by nature. Their business model is to make as much money as possible, and so they don’t reduce the interest they can get from you out of the goodness of their heart.
And they make a huge amount of money from fixed interest rates.
Usually, when fixed rates are particularly good, it’s safe to assume that they’ll get even better. After all, bankers know a considerable amount more about the financial, lending and economic landscapes than everyone else.
When fixed rates go low, my instinct is to wait. Experience has told me that it’s often a sign of more to come.
When fixed rates stabilise or begin to increase again, it’s a sign that the lowering cycle is coming to a rapid end. For those who would benefit from a fixed interest rate mortgage, that’s the time to seriously consider locking in.
Should you fix now?
Short answer? No. I believe rates are set to go lower in the mid-term and better fixed deals are still to come.
The Reserve Bank doesn’t have many bullets left in its chamber in order to kick-start the economy, which is what the recent pattern of rate reductions have been designed to do.
But that doesn’t mean rates won’t go lower.
Markets in Sydney and Melbourne have bounced back, and real estate is once again in hot demand. But the level of new business for lenders is still considerably lower than it was during the boom.
Lenders, particularly the big banks who are facing stiff competition from smaller operators with attractive deals, are having to work harder than ever to attract borrowers.
For this reason, I expect lenders will pull out the stops in the coming year or so in order to compete for every borrower. This will be the case with fixed rate products especially.
Enduring economic uncertainty means another rate cut is on the cards in the near future, which will see rates lower once again across the board.
If you want to fix your interest rate, biding your time for a bit longer could save you even more money in the long run.
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The information provided in this article is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs.
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