Unless you are a bit of a Home Loan geek such as myself you probably haven’t got your head around why interest rates are trending upwards at the moment. The pithy summary is that Australian banks have increasingly sourced their funds from overseas including the USA. In this case where they may be sourcing funds from companies such as Google and Amazon (who have spare Billions they don’t know what to do with) the bond rates have increased and have pushed short term funding costs up by as much as 60 basis points (0.6%). The Banks are balancing their desire to maintain their profit margins without upsetting consumers too much or appearing to (ab)use their rather excessive clout. Some rates are trending up however there are still some very attractive discounts for the right type of borrower.
Given the upward trend in rates many consumers are now considering fixing their rates. This can be a good move however several considerations need to be made:
- Understand potential break costs if your circumstances change and you want to end the loan term early
- You may not be able to benefit from the use of Offset accounts or make additional repayments during the fixed term – conditions differ from lender to lender
- Check the revert rate at the end of the term to ensure that discounts available are applicable. The cost to refinance at the end of the term may consume the benefits of fixing in the first place
- You may consider Rate Lock options when fixing your loan to ensure the rate you sign onto is still the rate at settlement. Big changes can happen in the short period of time between application and settlement.
There are many benefits of Fixing as well such as certainty in repayments over the period in which it is fixed. If your income is steady you may prefer to avoid the volatility of variable rate loans. It is best to chat through the pros and cons with your Broker before you make your decision.
Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs.
You can contact Doug at email@example.com or (m) 0408 671 524.
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This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.