If you haven’t already heard, on the 3rd of May 2022, the Reserve Bank of Australia (RBA) increased the official cash rate from the record low of 0.1% up to 0.35%. A rise of 0.25%.
Now according to many media reports, this saw the beginning of the end. The sky began to fall, and we should all panic!!!
We should take a deep collective breath and take a calm look at what it really means to you and your loan. After all, everyone’s circumstances are different.
Regional Victoria’s average home loan size is a pinch under $500,000. But working on an even figure of $500,000, a quarter of a percent rise will see on average, an increase to your minimum monthly repayment of approximately $68 per month. $15.70 a week.
While any increase to your home loan repayment is a nuisance, and we’d all rather it didn’t happen, it has. And it will again. With the RBA’s official cash rate predicted to return to at the very least a whole number by Christmas next year if not much earlier.
In anticipation of the rates increasing, most, if not all lenders adjusted their Fixed rates and increased these on average to somewhere around 4% to $4.5% for a 3 year period. While Variable rates now sit at about 2.5% to 2.75% when under 80% LVR (Loan to Value Ratio).
History tells us that the variable rates will catch this fixed rate mark. It’s the when and how long that will take that remains the mystery. After the recovery from the GFC (Global Financial Crisis 2007-2009) this took about 18 months. However, it is poignant to note that the last time interest rates rose, Mortgage Brokers wrote approximately 30% of loans, with the major lenders making up the majority. Today, Mortgage Brokers make up for nearly 70% of loans written. The complete reverse. This sees a lot of non-majors in the market have the ability to make an impact and keep some pressure on the majors to stay competitive.
So, what should you do?
Firstly, we always recommend that you contact your mortgage broker and organise a catch up to discuss and run some figures on what the rate changes mean to your specific circumstances. But put simply, it all comes back to your monthly expenses.
If you’re in a position, especially post COVID, where you simply cannot afford for your home loan rates to increase past that 4.5% rate, then fixing may be the option for you. This way, although short term you will pay a higher monthly repayment than if it were to remain on variable, you are ensuring that you know exactly what your monthly outgoings are even if interest rates do spike quite high past this mark.
If you are comfortable with your current repayments and may even be paying a little extra each week, fortnight or month, you might choose to stick with a variable rate and enjoy the lower repayments while they are on the rise.
Whatever is right for you, panicking and making a rash decision shouldn’t be an option.
Give us a call or book a meeting to discuss further if you have any questions at https://rehl.com.au/book-an-appointment/