Current fixed rates for mortgages are on the rise but remain historically low. Is it too late to consider fixing your mortgage? We look at the pros and cons.
With the official cash rate set by the Reserve Bank of Australian (RBA) at 0.10% interest rates in Australia remain a at historic lows. Up until recently owner occupiers have been able to fix the interest rates at below 2% p.a. for period of up to two years and those with investment mortgages at just over 2%. In fact, what we have seen over the last two years was the ability to lock in a 2-year fixed rate at less than current variable rates which was highly unusual.
Interest rates predicted to rise from as early as August, with the NAB forecasting a rise of 65 basis points by February 2023. Banks and non-bank lenders alike have all priced in expected interested rate increases. This can be seen in the sharp increase in even the most competitive 2-year fixed rates from 2% to around 2.75%. Variable rates have remained stable at around 2% once again for the most competitive mortgages.
Is it Too Late to Fix My Mortgage?
There is now around a 0.8% differential between variable and fixed rates for a two-year mortgage expanding out to around 1.7% for a five-year fixed rate. Returning to standard incremental rate hikes of 0.25% one would need to see the RBA increase rates between 4 to 7 times, depending on the term, before variable rates are likely to overtake current fixed rates.
So, in most cases it is probably too late to look at fixing your entire mortgage. Some of the things to be aware of when fixing your mortgage include:
- There will be likely break costs if you sell your property or wish to revert to a variable rate;
- The ability to make extra repayments onto your mortgage may not exist or will be limited to a set amount of say $10,000 p.a.
- Fixed rate offerings have less flexibility than their variable counterparts. Offset and redraw facilities may not be available or you may be charged extra for these.
The circumstances in which I usually advise clients to fix their mortgage are currently limited. One, is where they have a change in circumstances or budgeting is very tight and they are at real risk of defaulting on their repayments due to affordability issues.
A Better Way to Save Money on Your Mortgage
Every week I meet with clients and come across examples where they are paying far too much for their mortgage. In some cases I see clients paying a variable rate of 1% above current competitive rates. An easier way to manage increasing interest rate and save money is to shop around for a more competitive mortgage.
If you have stable employment, a good credit rating and more than 20% equity in your home then then there are few reasons why you could not refinance to a variable mortgage rate from as low as 2.0% and two- year fixed rate from 2.75%.
At Killara Wealth we have direct access to and can compare thousands of different products from over 50 lenders including all the major banks to ensure you get the most competitive home or investment loan based on your situation. So regardless of how simple or complex your lending requirements are, including investment loans, arrange an appointment today. For more information on our mortgage broking service please visit Mortgage Broking Services – Killara Wealth Management