Two major banks raise fixed interest rates in a seismic shift
Are the days of low fixed interest rates a thing of the past? With two big banks raising their fixed rates this week, it appears that this is becoming more likely. So, if you've been thinking about refinancing your home recently, this might be a good time to do so.
Do you know that when one tectonic plate shifts, other tectonic plates around it shift as well?
The interest rates on their 2-, 3-, 4-, and 5-year fixed-rate house loans were increased by 0.1 % last week by the Commonwealth Bank (CBA) and later Westpac (for owner-occupiers paying principal and interest).
In the meantime, ING increased its 2- to 5-year fixed rates by 0.05 % to 0.2 %.
It’s a clear indication that the days of super-low fixed interest rates are coming to an end for mortgage holders.
So, what's the deal with banks raising fixed interest rates?
Although the official cash rate isn’t expected to rise until at least 2024, the Reserve Bank of Australia (RBA) has frequently stated that it won’t.
However, it appears that the banks don’t believe them. The banks believe that it will happen sooner rather than later than later
CBA, for example, predicts that the RBA would raise the official cash rate in May 2023, while Westpac predicts a rate increase in March 2023, both of which are considerably ahead of the RBA’s 2024 deadline.
The big banks are now altering their fixed rates on fixed terms of two years and longer to avoid the predicted increase in their funding costs, which is around 18 months away.
Canstar financial analyst Steve Mickenbecker said, “Lenders are scrambling to raise fixed rates before they start to feel the pinch.”
‘Borrowers shouldn’t be complacent, since they should expect increases within the next two years, and the closer they go to that, the less appealing the fixed-rate option becomes.’
“While things are still excellent, they might want to think about lowering their interest rate for three years or more.”
Variable interest rates cut
This week, several banks, including CBA and ING, lowered interest rates on certain of their variable-rate house loans at the same time.
CBA even lowered its 1-year fixed rate by 0.1 %age points (for owner-occupiers paying principal and interest).
So, why did they do this when fixed rates (for a longer time) are rising?
When a cash rate hike is expected to be at least 18 months away, aggressively competing for clients on variable-rate mortgages (and 1-year fixed mortgages) makes sense for lenders.
Variable-rate borrowers can always raise their rates when they need to, but they can’t do the same for borrowers who are trapped into longer-term fixed-rate mortgages.
This brings us to the following question:
As previously said, it’s not uncommon for other lenders to follow suit when the big banks make a move, as was seen with ING this week.
So, if you’ve been on the fence about setting your rate, it’s a good idea to contact us as soon as possible.
We can walk you through a variety of options, such as locking in your interest rate for two, three, four, or five years, or only locking in a portion of your loan (but not all of it).
Please get in touch immediately if you’d like to learn more about this – or any of the other subjects discussed in this post.
To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at firstname.lastname@example.org
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