August 09, 2017 by Rebecca Crommelin
Currently, there is one question on all Australian mortgage holders’ and borrowers’ minds; how long until interest rates are back up over 6% p.a.?
Unfortunately, the short answer is; “nobody knows”.
Every month, the Reserve Bank of Australia (RBA) works hard to achieve a delicate balancing act when looking at the official cash rate. They review all the latest economic data – for both domestic and global – and then make an educated decision based off this data.
If the RBA was to make one wrong decision we could see the Australian dollar soar, and this could have a damaging effect on our import / export trades.
In addition, one wrong decision could cause business confidence to decline, resulting in more retrenchments and increased unemployment rates.
This means that every move the RBA makes is huge.
But instead of focusing on the “what if’s” – let’s take a look at what is happening right now.
First things first, interest rates – in particular, for owner-occupiers who have a variable, principal and interest home loan – are still sitting at record lows. And recently, some of Australia’s lenders have further reduced the interest rates on their range of home loans.
Because of this, the cost of borrowing is now more affordable than ever for some home owners.
Looking forward, majority of Australia’s leading economists predict that the RBA will continue to hold the official cash rate for the foreseeable future. Some experts predict that the RBA could continue to leave the cash rate untouched until at least 2019.
When rates do eventually move, 88%* of economists predict they will move up.
Meaning, now could be the ideal time to fix your loan to lock in low rates ahead of any rises.
We have already seen several lenders adjust their interest rates based on new regulations enforced by the Australian Prudential Regulation Authority (APRA), and their appetite for business.
Since the start of the year, several Australian banks and lenders have made an effort to decrease their amount of investor loans they write to cater to APRA’s demands. And one of the ways banks can control their level of business is by adjusting their rates. By increasing their rates for particular home loan products, they effectively decrease the level of interest for this type of customer as borrowers look to other lenders for better deals. Looking ahead, it’s expected that rates will still increase across certain products.
However, no one can say for certain what will happen with interest rates in the near future. But what we do know right now is that interest rates are sitting at all-time lows, and recent economic data would indicate that home loan rates – especially for owner-occupiers who make principal and interest repayments – will remain around these lows for the foreseeable future.
As a result, it could mean that now is the right time for existing borrowers to lock in these record low rates and fix your home loan before any rate rises occur. Either way, we would still recommend that existing borrowers review their current financial situation to ensure they are still in the right product for their needs.
If you'd like to find out whether fixing your home loan is right for you, chat to our team today on 9485 0090.
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*Finder, July 2017 https://www.finder.com.au/rba-cash-rate
