By Louisa Sanghera, Director, Zippy Financial
We have had a lot of interest rate rises over the last few months, with the cash rate now sitting at 1.85%. That is 1.75% higher than it was at the beginning of the year!
The cash rate determines the interest rate you will pay on your home loan, so a higher cash rate means a higher mortgage repayment. At the moment, on an average $600,000 loan, borrowers are paying around $600 more per month than they were six months ago, as a result of these interest rate increases.
Instead of adding to all the doom and gloom that we are all reading about, I want to add something positive to the conversation… or at the very least, I hope 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, 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, 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 six months will do their job of keeping inflation in check.”
In just the last week or two, we have begun 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 next year.
Well-known chief economist at AMP, Shane Oliver, agrees 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.
Should you fix your home loan rates?
It’s a good time to consider what action you should take with your home loan. Here’s my suggestion for you, depending on your current situation:
- 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 in the home loans market. If you are a Zippy client, we already have a note in our calendar. We can then review the market and come back to you 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 currently 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, as 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’re 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-plus years in the banking and finance industry, I’ve seen more people lose on fixed rates than win. If you’re 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
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 in business, health or financial.
