Making the decision whether to fix your home loan rate is a tough one and requires you to do some research into the economy, the home loan market, as well as what may best suit your finances.
There are a few things to keep in mind when making this decision:
- The Reserve Bank of Australia (RBA)
Often, the biggest question facing homeowners is whether they should fix now or wait to see if rates change further. This is where it’s important to remember that no one can predict where the market may move next with 100 per cent accuracy. What we do know is that the days of home loan interest rates in the teens have been gone for several decades.
Australia recently experienced the lowest home loan rate environment in its history. This was due to the state of the Australian economy, as well as the Reserve Bank of Australia (RBA) cutting the cash rate down to a record-low number, having not raised the cash rate in over 11 years.
However, from May 2022 the RBA began raising the cash rate to help tackle inflation. With the cash rate likely to lift higher in the future, you may want to consider fixing to try and prevent rate hikes from affecting your repayments. Remember that if your lender changes its fixed rates between your application and its approval, you could end up paying a higher rate on your home loan, unless you opt to pay a rate lock fee.
The RBA takes stock of what is happening on a domestic and international scale when making its decision around whether to change the cash rate. This means that you may want to do the same when deciding whether to fix.
Events such as the COVID-19 pandemic, share market crashes and general volatility may significantly affect the decision of the RBA, as well as your lender, around lifting interest rates. It may be worth doing your research in this area to make a more informed decision around if, and when, rates may lift again.
- The home loan that suits you best
Mortgage lenders frequently lift and cut interest rates out-of-cycle with the RBA. Trying to lock in the perfect moment to fix may be a fool’s errand. This means you may be better off weighing up the RBA’s movement and the economy against whether a fixed rate home loan suits your budget and finances more than a variable rate loan.
For example, imagine you opt for a variable rate home loan with an offset account. Your lender hikes your variable rate a few years into your repayments, but you may not feel the impact as much as you’ve been steadily depositing funds into your offset account.
This is why choosing the right repayment option for your home loan is also about comparing any potential upfront or ongoing fees, and the features and flexibility offered by the loan.