Expect rates to rise on your home loan, but there are savings to be made

With my economist cap, I like the idea. Higher interest rates would be a sign that our economy has been deemed healthy enough to continue generating jobs and income growth, without the need for historically extraordinarily low borrowing rates. Higher rates will also help limit the spike in property prices that has driven young people to give up what should be a basic human right to secure and stable housing.

It would be wise for all home borrowers to take some time out this weekend to make sure their current interest rate is still the lowest they could afford.

As the owner of a fairly large mortgage, of course, this is something I watch quite closely.

Since I took out my mortgage almost two and a half years ago, I have only experienced interest rate cuts. When I first took out my loan, I had an interest rate of around 2.69%. Today I’m stuck at 1.84% until the middle of next year.

Of course, it is important for all borrowers to remember that their lender will have put them through a stress test when applying on their ability to repay higher interest. You may not want it, of course, but you should be able to find room in your household budget.

Still, it would be wise for all home borrowers to take some time out this weekend to make sure their current interest rate is still the lowest they could afford.

The bad news is that most fixed rate deals below 2% are gone. Now that interest rates are expected to rise, banks just don’t want to lock you into such offers for so long.

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The (rather) good news is that most major banks have actually reduced their variable rates in recent weeks, at least those offered to new clients with a high amount of equity and making both principal and of interests.

On Friday, Commonwealth Bank cut its best variable interest rate offer by 0.10 percentage points to 2.19% for borrowers with loan-to-value ratios (LVR) of up to 70%. This now puts him on par with NAB and ANZ.

Westpac appears to be leading the pack, offering a variable rate of 2.09% for these borrowers. Although I checked it, and although there are no fees on this basic loan, it also seems that there is no possibility of having an offset account. Clearing accounts can often save you a lot of interest because any cash or emergency savings you put into them reduce the net worth of what you owe by that amount, reducing your interest payable.

If you look outside of the big four, of course, there are even bigger savings to be had.

“Holders of adjustable rate mortgages have a window of opportunity to get themselves a rate cut before the RBA steps in.”

Sally Tindall, Research Director of RateCity

According to the RateCity database, there are still five lenders offering fixed rate loans below 2% and 35 lenders offering variable rate loans below 2%, including some big names like Citi and HSBC.

Cutting home loans, Homestar Finance and Pacific Mortgages Group appear to offer the lowest variable rates in the market at 1.79%, although loan sizes and LVR restrictions may apply. Online lenders Tic:Toc and Homeloans.com.au offer a variable of 1.89%.

Yes, these variable rates will all increase when the Reserve Bank begins to increase the official exchange rate.

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But it does help ensure that you start from the lowest possible starting point when this happens.

“Holders of variable rate mortgages have a window of opportunity to get a rate cut before the RBA steps in,” says Sally Tindall, research director at RateCity.

“If your bank offers a lower variable rate to new customers, call them and haggle. Lowering rates now will help cushion the blow when variable rates rise.

Canstar financial expert Steve Mickenbecker also points out that these offers are not available to existing customers.

“Borrowers who have had their loan for five or six years are likely to make repayments on a lump sum loan with an interest rate at least 1.2% above Westpac’s best rate. That’s about $316 more per month on a $500,000 loan, and the fees are higher. »

That’s about two tanks of gas at today’s pump prices.

Housing remains by far the largest expense in the budget of most households. Don’t forget to register and make sure you’re paying the lowest possible interest rate.

  • The advice given in this article is of a general nature and is not intended to influence readers’ decisions regarding investments or financial products. They should always seek professional advice that takes their personal circumstances into account before making financial decisions.