This is one of the more commonly asked questions in the Home Loan industry and it can be difficult to answer, however, history is usually one of the best guides.
With the Reserve Bank of Australia’s (RBA) Cash Rate sitting at an all-time low 2.00%, speculation is growing that the next shift will be up. If the Cash Rate does increase in the near future, these cost would then be passed onto consumers, as we saw late last year when an out-of-cycle interest rate increase took place.
It’s challenging to forecast the outcome of interest rates, although Fixed Rates can be an indication as these are set by Economists who predict a two to three year economic outlook.
In the past, we’ve seen that there are other minor indications that suggest interest rates will increase, with one of these being slight elevations in rates a few months out. In December last year, standard variable rates were as low as 3.79% and we’ve seen these rates steadily increase over the last two months with the lowest rates currently around the 4.09%^ variable mark. Keep in mind that this is a very competitive environment so lenders are mindful of increases.
Investment lending took a hit last year due to changes in lending policies that were implemented by the Australian Prudential Regulation Authority (APRA).
After the RBA and Federal Government expressed concerns of a potentially overheated property market, especially in Melbourne and Sydney, APRA stepped in to limit growth in the investment lending channel. APRA placed a cap on investment lending which resulted in lenders increasing investment interest rates in order to protect their shareholders and profit margins.
Let’s Finance GM, Scott McCartney said “this type of uncertainty can be unsettling and I don’t know anyone that would want to spend more than they need to, especially in interest repayments. Fixed interest rates are currently providing great value with some lenders offering fixed rates that are more than 1% lower than the standard variable rate.”
Variable rate loans fluctuate with both increases and decreases, while fixed rate loans can provide comfort in knowing your exact repayments.
Fixing your rate:
Is a way of managing risk
Offers the certainty of knowing the exact amount of your Home Loan repayments
Is ideal for those that are on a tight budget.
For further information see our Fived vs. Variable chart.
McCartney said “ultimately, the decision to fix relies on financial circumstances and personal preference but if you have set a clear budget and believe that you would benefit from knowing the exact amount that your repayments will be, then a fixed rate could be more beneficial to you.”
It comes down to personal preference, your financial circumstances and whether you can afford to stretch your budget and keep a buffer for interest rate increases.
Of course, another option to consider is a Split Loan. Whether you plan on fixing, splitting or leaving your interest rate as variable, it’s always important to compare Home Loans products in order to make sure that it’s the best suited.
Talk to a Home Loan Specialist before making the decision so you can weigh up all the benefits and receive additional Home Loan tips. With access to more than 30 lenders and over 800 financial products, we’ll find the best suited Home Loan for your current lifestyle. Our service is free so it makes sense to see what options are available, it may even save you thousands.
This article offers general information and does not take individual financial circumstances into account. Please consult a Let's Finance Home Loan Specialists on 08 9315 8888 or contact us for advice specific to your financial situation.
^Interest rates current at time of publication, click here for further information.