Despite assurances from the RBA that they have no immediate plans to raise interest rates, the combination of massive increases in property prices, higher serviceability buffers, and rising bond yields has many lenders ready to increase interest rates regardless. In some cases, they already have. 


One of the big four banks (CBA) raised one-year fixed home loan rates by up to 0.50 percentage points for owner-occupiers and investors, the first one-year fixed rate increase from a major bank since 2018. And as we all know, once one lifts their rates, the rest tend to follow. 


Almost 30 lenders increased 343 fixed rates by an average of 0.17 percentage points in October. Most major lenders have also recently increased their rates on a two to five-year fixed-rate term for owner-occupiers by up to 35 basis points (or 0.35%). In many cases, once the fixed term is over, the rates will revert to much higher rates. 


Rates for fixed-term mortgages are influenced by the bond market, which is the source of funds for banks, governments and companies when they borrow money. That money is subsequently loaned to mortgage borrowers. The steep rises in bond yields increase borrowing costs for lenders, which is passed on to mortgage borrowers. 


Now is the time to consider fixing all or part of your home loan ahead of more widespread rises. 


There's a benefit to only fixing part of your loan, and it's worth consideration. You can take advantage of making extra repayments on the variable portion of the loan, or you can set up an offset account, which will offset the balance of the account against the balance of your mortgage, reducing interest paid. You only pay interest on the difference. 


When investigating a switch to a fixed-rate loan, it's worth speaking with a mortgage broker because not every loan is created equal. To identify which fixed rate is correct for you, you will need to do your sums to identify your genuine savings, taking into account:  


  1. Break fees - the amount it costs to leave your current lender. Some have low or no fees, but others can charge up to $500.
  2. Government fees, such as mortgage registration. These can cost up to $500.
  3. Lenders' fees and charges (application fees and any account keeping fees)
  4. Property valuation - Often, your new lender will charge you a fee for a property valuation.
  5. Loan settlement fees ($100-$300)  

While investigating the best fixed-rate offerings, it's also an ideal opportunity to research some of the features you might like attached to your loan. 


Are you likely to need a repayment holiday, an excellent feature if you know you might need every penny for a few months, like starting a family? Some lenders allow for payment holidays or even reduced payment options. 


Will you need a credit card attached to your account? 


Do you want only to fix part of your loan, or do you require an offset account? 


Are you likely to want to move in the next few years? You might be interested in a portable loan that can migrate to a new property with you if that's the case. 


Mortgages can be very straightforward or can come with a raft of added extras, and it's worth talking to your broker about the type of features you need.  


There's no doubt that even if the RBA keeps interest rates low until 2024, as they have indicated they will, banks will move rates upwards regardless, so now's the time to investigate fixing part or all of your home loan before rates get too much higher. 


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