Calm before the interest rate storm

Don’t get comfortable; fixed interest rates are already rising

Australia’s largest independently-owned mortgage broker, Mortgage Choice applauds the Reserve Bank of Australia for holding off on a cash rate rise for another month, while warning new and existing borrowers to batten down the hatches for an almost certain run of rises in the near future.

As talk continues of lenders looking to increase variable home loan interest rates independently of the cash rate cycle, the Reserve Bank made a mostly unexpected move on 5 October by keeping the rate steady at 4.5% for the fifth successive month.

This occurs as a number of lenders are increasing rates on some or all of their fixed term loans.

Local Mortgage Choice franchise owner Peter Johnson said, “Another month with a steady cash rate is fantastic news for anyone repaying a variable home loan and those looking to enter the market.”

“However, it’s pretty much a given we’ll soon see an increase to variable rates prompted by either a Reserve Bank cash rate move or by lenders moving interest rates regardless. The vast majority of economists say we’re looking at several rate rises by the end of 2011. Anyone who’s not aware of this and has, or is looking to take out, a variable rate home loan needs to catch up quickly on the information out there and prepare their budget now.

“Another important trend receiving little attention thanks to the heavy focus on variable rates is that fixed home loan interest rates have been creeping up over the past three weeks.

“Our lender panel’s average interest rate for a three-year fixed term home loan - the most popular - hit rock bottom in mid September and is very much on the way up. We have 24 lenders on that panel and 11 of those increased rates on one or all of their fixed loans over the past three weeks.

“A number of these lenders have already done so more than once.

“This saw our panel’s average three-year fixed rate rise by 0.14 percentage points in the past three weeks, from 7.33% to 7.47%.

“However, there are some fixed rate deals about with much lower rates and surprising flexibility.

“Anyone looking at fixing part or all of their loan amount really should get their skates on but be sure to base any home loan decision on thorough research and a good understanding of their current and future needs and financial situation. A fixed term home loan doesn’t suit everyone.”