Economists are suggesting that the official cash rate will remain on hold at 2.5 percent for many months to come. So what does this mean for the average home loan holder?
Currently home loan interest is low and these low rates are allowing home loan holders to make considerable savings. Some home loan holders are still paying their usual monthly home loan payments, which means they are now paying more off the principal of their home loan. Others are paying more into offset accounts and reducing their home loan principle this way.
But many home loan holders are questioning whether or not they should be looking at refinancing and fixing their existing home loan. This comes after lenders have reduced fixed rates to an all time low.
Why are some lenders still reducing rates?
Despite the Reserve Bank of Australia (RBA) leaving the official cash rate on hold, lenders are continually reducing their variable and fixed rate home loan interest rates in an effort to capture a greater share of the market.
According to recent data some 7 lenders have cut their variable home loan rates. Amongst these are the ANZ, Bank of Queensland, Citibank, HSBC, and Westpac. Variable home loan interest rates are now as low as 4.49 percent.
Fixed rate home loans are also at an all time low with 3-year fixed rates hovering in the 5 percent range.
Historically speaking, lenders tend to try and predict what the RBA will do. This means they lower interest rates during a time of stability to their lowest and then they’ll start to move these interest rates up before the RBA makes any changes to the official cash rate. This means lenders will hit ‘rock bottom’ well and truly before a rate-rise and would have a higher rate in place before the official cash rate starts to rise.
So if you’re a home loan holder who is concerned about rate rises, then economists are suggesting that now could be the right time to make your move. Why? Well, let’s say that variable rates rise to 7 percent over the next four years. If the average 3-year fixed rate home loan is 5.11 percent and the variable rate is 5.39 percent, and the variable rate continues to rise to 7 percent then you can save yourself thousands in interest if you switch to a fixed rate. Of course, the amount you’ll save depends on the amount you borrowed and your home loan term.
Other considerations before you take out a fixed rate home loan
Before you decide to move from a variable to a fixed rate home loan it is important that you consider the cost of switching. This means working out what fees and charges you’ll incur and just how much payment flexibility you can stand to lose by changing from a variable to a fixed rate.
Are you looking to switch home loans? Then contact eChoice and find the right home loan for YOU today.
Written by eChoice