Variable rates slashed, whilst Fixed rates soar
Interest rates are still the topic of conversation with changes coming thick and fast. Something is changing every week.
Westpac have slashed their lowest variable rate this week whilst increasing their fixed rate options. Westpac’s lowest variable rate is now an “ultra-competitive” 2.09% for people with a 30% deposit, while both St George and Bank of Melbourne now offer 2.04% for borrowers with a 40% deposit. It’s astonishing to see some fixed rates rise by over two percentage points in the last 12 months, when the cash rate hasn’t moved a muscle. As a result, the majority of big four bank owner-occupier fixed rates now start with a ‘3’, some even a ‘4’.
Without any official rate changes by the RBA – Banks are manoeuvring their own ledgers/books. So, it is important for customers to be discerning in their choices and to be deliberate about their plans in the short to medium term when it comes to their mortgages and loans.
If you know what your immediate plans are for the short to medium term (as best you can in today’s fast changing world) – then you can look to fix in a loan or a portion of a loan. Many are now opting for the split facility. Some variable (which is now considerably lower than the fixed rates) and some fixed. They will be paying more on the fixed rate with the view of trying to hedge their bets on where interest rates might end up in 1-5 years. By splitting the loans, you do get to average the overall rate between the two facilities.
However, a caution – breaking or paying off any fixed loan does incur penalties. It can be expensive if you either pay it off, sell the property or refinance to another lender for a better deal during that time. So only ever fix in line with your own plans. Customers should sit down with their broker to look at their individual plans and needs and try to come up with a plan to navigate through these next few years of changing environments.
All these interest rate increases affect affordability. For those wanting to enter the market it is getting a little harder. The latest HEM (household expenditure monthly) figures have increased – it just costs more now for everyday living as well as increasing interest rates and increasing house prices. Depending on where you are in the market, first home buyer, upgrading, downsizing, or just trying to get ahead with the mortgage you have now -there will be different options and strategies available to you.
Open frank discussions and planning are what will get you through or keep you on track. For example – the LVR plays a critical role in the interest rate you could achieve. If you are unsure of the equity you currently have in your property (which could get you a lower rate) – get an appraisal on the property to see where you are. Your reduction of your existing loan and the increased value alone could get you a better rate. Reach out to your broker to see if there is anything that can be tweaked or improved.
Warm regards,