As discussed in-depth within this edition of Property Now, in response to rising interest rates, Australians are refinancing their home loans in record numbers.
But with a number of factors to consider for both new loanees and those with existing mortgages, care must be undertaken by consumers to find the solution which suits them best.
We spoke to Yellow Brick Road’s Home Loans Executive Chairman Mark Bouris and Economist Stephen Koukoulas for their expert analysis on the market’s current state, the steps consumers should be taking and the balance between fixed and variable rates.
Q: What do you foresee for the RBA cash rate as 2022 progresses?
As we predicted, the RBA announced another 0.50% raise to the official cash rate at the start of August, moving it up to 1.85%. Looking ahead, we feel that we may be looking at another 0.50% increase in September. Our current forecast is that by year end, the cash rate will be sitting at around 2.50% to 2.75%.
Q: How should consumers be looking to navigate the current conditions?
Unfortunately, when inflation is doing what it’s doing at the moment, the people who bear the brunt of repairing the spike are those who borrowed money to buy a house. While these are definitely complex and uncertain times for borrowers, now is not the time for panicking – it’s time to strategise. You need to be conscious of saving money in everything you do, to make sure you can continue to sustainably pay your mortgage.
And the most important step is to check your current interest rate against other competitive offers out there. Any mortgage owner who doesn’t assess their current deal will face growing pressure as rates continue to increase. There are a large number of Australians who never bother to check their interest rate – this means they simply won’t know if they’re paying too much and then never actually refinance – at the end of the day, these are the people who will end up paying over the top.
Q: Fixed or variable rate – what works best?
For borrowers who currently have a variable rate home loan or are about to borrow money and have the option of a fixed or a variable interest rate product, we think it’s a personal decision. If you want to be absolutely sure that your monthly repayments are going to be ‘x’ dollars a month for three years, get a fixed rate product, and whether rates go up or down, you’re hedged – you’ve locked in your monthly dollar value of repayments. But there are sometimes some hidden costs in that process – for example if you want to pay in more than your set repayments, sometimes there is a penalty to do that, so they don’t have the flexibility of a variable rate.
Ultimately, when it comes to your mortgage, the most important thing is that you choose one that suits your personal situation. For more tips and tricks, visit https://ybr.com.au/blog/.
