How quickly things can change in the span of a year. This time last year, fixed home loan rates were decreasing and were the lowest they had ever been, with a number of lenders (including the big four) offering fixed rates below 2.00%.
The present-day however, looks quite different. In recent weeks, there has been a consistent pattern within the Australian home loan market with fixed interest rates surging by 1.0%-1.5%. In March, the RBA left the cash rate unchanged once again, meaning it has now been over a decade since the cash rate saw an increase. It is a possibility that the market is acting prematurely as it has priced in four 0.25% rate raises over the next 12 months. Adding to the complexity is recent commentary in the press that rising interest rates provides the opportunity for banks to recapture some of the margin they have lost the last couple of years.
The competition in variable home loan rates is soaring as banks slash their variable offerings. This was exemplified by Westpac and NAB cutting their basic variable rates this month – we believe that other lenders will follow their lead. This divergence between fixed and variable home loan rates has increased the cost difference between the two offerings with the latter now being significantly cheaper, positioning the variable rate option as more compelling.
At Balanz, we have always taken a pragmatic and considered approach when discussing options with our clients. While 12 months ago the fixed rate prices were incredibly attractive, this appears to be no longer the case. Variable rate loans are well and truly outperforming fixed, but with rate rises on the horizon this outperformance will diminish. Borrowers will always look to minimise their interest payments. This means it is important to model debt options over the short, mid & long term and align loan type selection with your personal requirements and objectives (hint– if you expect variable rates to exceed fixed rates, consider the potential cost savings until this happens – your blended variable rate may still be significantly lower than if you had fixed from day 1).
We always have our clients’ best interests at heart and pride ourselves on adding value wherever we can. Providing options on how to minimise your interest payable can be a significant part of this. So please feel free to reach out to any of the Balanz team to discuss, review and make sure your current mortgage is structured to achieve the best possible outcome for you and your situation. We’re here to help.
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