With interest rates predicted to rise again at the RBA's upcoming meeting, a mortgage broker warns fixing your home loan rate may not be the solution.
Subscribe now for unlimited access.
or signup to continue reading
The Reserve Bank of Australia will meet on Tuesday, September 6, with some predicting rates could rise by 50 basis points.
If the experts are correct, this will mark the fourth interest rate rise so far this year.
To fix, or not to fix - that is the question
Around two-thirds (68 per cent) of Australian home loans originate through a mortgage broker.
Finance Brokers Association of Australia managing director Peter White said fixing your home loan rate ahead of the increases might sound attractive, but he warns breaking that fixed period could cost you up to $15,000.
"If you're thinking about putting in a pool, or adding another storey, or doing some sort of other renovation to your house, you may not want to take a fixed rate because of that break cost," he said.
If you're thinking about putting in a pool, or adding another storey, or doing some sort of other renovation to your house, you may not want to take a fixed rate because of that break cost.
If you do choose to fix your loan, he urged people to plan for the end of the fixed period when your home loan interest rate could double.
"Why don't you take the difference between that step in the future, and what you're going to pay now and put that money to one side," he said.
"That way it's not going to be an enormous shock to go from one repayment today to something very very different the next day."
IN OTHER NEWS
If you're not planning to vary your mortgage, fixing your interest rate could be a good thing, but Mr White urged anyone doing this to get advice first.
Cashback offers that sound too good to be true often are, he warns.
"They put people into a false sense of security. You might get a $4000 cashback by the lender, but it might have cost you $5000 to move. You've got lender's mortgage insurance, stamp duty, valuation fees, legal fees - all these things add up," Mr White said.
More interest rate pain to come
Experts predict interest rates will continue to rise well into next year.
"For the last 18 months [I've said] we're in a stupidly low interest rate environment, it's got to go up," Mr White said.
He expects rates to jump to around 5.4 per cent by March 2023, and then settle back to around five per cent by the end of that year.
"It's going to come down to unemployment rates. It's going to come down to what's happening with inflationary measures the government is trying to put into place to curtail things. There's a lot of things that impact these sort of measures," he said.
Who's most at risk?
First home buyers, those with a relatively new mortgage and those who stretched their finances too much will be most at risk.
"Anybody whose borrowed in the last 11 years has only experienced interest rates going down, this is the first time they're going to experience interest rates going up," Mr White said.
His advice - do your homework before making a decision, and look at how a lender is treating its existing customers before you sign up.
"If it looks too good to be true, it probably is," he said.
Make sure to keep an eye on ACM's live Rates Day Blog on Tuesday for all the latest news as the RBA meets.