Interest rates are a big factor in each repayment and the total cost over the life of a loan, so staying on top of your current rate, as well as the interest trends across the market, is essential.
By staying on top of interest rates, borrowers can make informed decisions about choosing a first-time home loan or getting a better rate by refinancing.
Interest rate percentages are based on a number of factors – the Reserve Bank, the cost of money on overseas markets, and the general state of the economy. Interest rates don’t appear to move by much when looked at as a simple number, sometimes only a fraction of a percent, but each basis point makes a significant difference to the total cost of a loan, and makes a big difference when you’re working to pay down your mortgage.
When you first lock in a home loan, you’ll choose a fixed or variable interest rate.
A fixed rate does not change over a set period of time, and your payments will be predictable each pay cycle. On the other hand, a variable rate is attached to the market interest rate and will move up and down with the market.
You can also opt to have a split loan where a portion of your loan is fixed and the rest is variable.
Interest rate calculators are very useful to help you compare rates across fixed and variable loans and translate the rates into an impact on monthly repayments, loan length and the total cost of a loan.
The Reserve Bank has held the official cash rate steady at its record low of 0.1 per cent since November 2020. Australia has not seen a cash rate rise since November 2010 however there is much speculation that interest rates are going to rise sooner rather than later. One of the big four banks predict a rate rise as early as August 2022, while RBA Governor, Philip Lowe, has repeatedly said he does not expect any increase until at least late 2023.
Currently, variable interest rates are relatively quite low, however fixed rates have increased significantly across all lenders.
While there is no crystal ball, it seems inevitable that home owners will need to be prepared that the run of record low interest rates is going to come to an end in the coming year or two.
The best way to keep on top of those movements is to stay in contact with your finance broker. They will be able to help you either get a better interest rate with your current lender, or to shop around to find the best deal for refinancing when the time is right for you.