We have had a lot of interest rate increases over the last few months. The cash rate is now sitting at 1.85%, which is 1.75% higher than it was at the beginning of 2022.
The cash rate determines the interest rate that you will pay on your home loan. A higher cash rate means a higher mortgage repayment. As a result of the rate hikes, on an average $600,000 loan, borrowers are now paying approximately $600 per month more than they were six months ago.
Instead of adding to all the doom and gloom that we are hearing and reading about in regards to home loans and interest rates, I want to inspire you to get back in the driver’s seat of your finances so that you are not paying more than you need to for your home loan.
How high are interest rates likely to go?
Nerida Conisbee who is the chief economist at Ray White Group says that as inflation starts to pull back, so too does the need to raise interest rates. “Importantly, the expectation of how high the peak will be continues tock,” she said in a recent report. “A few months ago, it was expected to be well over 4%.”
Now though, expectations are changing. I’ve been saying for the last few months that I believe the cash rate will likely peak in the 2’s. I don’t believe the cash rate will reach 3% or above, as I think the massive increases that we have had in the last 6 months will do their job of keeping inflation in check.
We have started to see banks, economists and other industry experts start to share their forecasts of where they think interest rates will go. Interestingly, a number of them are predicting rates will settle and perhaps even start to fall in 2023.
Well-known chief economist at AMP, Shane Oliver, agrees with my view that the cash rate will “peak with a two in front of it rather than a three”. MortgageBusiness reports that Oliver believes the cash rate will go no higher than 2.6%. The Commonwealth Bank also expects the cash rate to peak at 2.6% by the end of 2022, while NAB forecasts 2.6% by February 2023.
So, should you fix your home loan rates?
Now that we can see light at the end of the tunnel – in the form of an end to ongoing interest rate increases – it’s a good time to consider what action you should take when it comes to your home loan.
Here is what I suggest…
- If you currently have a fixed rate loan: Check the date that it expires and make a note in your calendar before the expiry to compare your options. As a Zippy client, we already have a note in our calendar. We can then review the market and come with options when your fixed contract ends.
- If you have a split rate (part fixed/part variable): Contact us and we can run the numbers on your specific situation, and provide guidance on the best next steps for you.
- If you have a variable rate loan: You may be considering fixing. I want to urge you to consider the overall cost of fixing into a high fixed rate, because over the long-term, you may lose out if rates don’t go higher than high 4.5% to 5%.
If you fixed your rate in 2020 or 2021, then you are on a winning track, but people fixing into high fixed rates now could lose out, if rates start falling sooner than later. In my 30+ years in the banking and finance industry, I’ve seen more people lose on fixed rates than win. If you are not sure what action to take next and you want some professional guidance to help you make the best decision for your situation, contact our team today for an obligation-free chat.
Phone: 1300 855 022
Email: clientservices@zippyfinancial.com.au
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Connect with Louisa on Linkedin.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer: This article contains information that is general in nature. It does not consider the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.