Will your mortgage rate increase soon?


The Governor of the Reserve Bank may be telling us that he won’t raise interest rates until 2024, but what about the banks? According to the latest interest rate news, ACB has raised its three- and four-year fixed-term rates for homeowners by five basis points and 10 basis points on investor-only loans. This brings the three-year fixed rate to 2.19% and the four-year rate to 2.24%.

But given what RBA boss Dr Phil Lowe said about the cash rate remaining at 0.1% through 2024, what are these rate hikes?

The problem is that the economy is rebounding strongly and the country’s banks are left with only $ 90 billion of cheap credit provided by the RBA through what is called the Term Finance Facility (TFF) to mitigate the coronavirus hit. A strong economy and soaring house prices mean there is a high demand for loans, and without this cheap loan money, experts warn that fixed interest rates will rise.

The cheap money for banks has come out of the coronavirus crisis and it means the RBA has provided something called the term finance facility (TFF). In March of last year, bank loans amounted to $ 90 billion and were priced at the spot interest rate. It was 0.25% then, but now it is 0.1%. And in September, the RBA increased the available funds to $ 200 billion.

SMH Evans and Partners analyst Matthew Wilson said the RBA term finance facility contributed to the proportion of new fixed rate loans which more than doubled to around 35% of all new mortgages . “

More than a third of borrowers now have fixed rates, so there are two issues borrowers need to consider. First, if you are about to borrow, fixed rate home loans will be more expensive, so you better shop around.

The Rate City website shows that the market’s lowest three-year fixed bid is 1.79% at Credit Union SA. He also points out that “six lenders have increased three-year fixed-term rates, while 20 institutions have increased their four-year loan products.” (news.com.au)

Second, when those with fixed rates see their loans expire, they will switch to a much higher variable or fixed rate alternative.

While hatred of banks is a national pastime, they actually have a good reason to raise fixed rates. This is because as the cheap TFF money wears off, they will have to go to the wholesale market for more expensive funds. Having said that, they probably arrive earlier with the hikes than necessary, but who thought the banks were a charity?

On the bright side, this could encourage banks to raise saver rates on term deposits, which would be a step towards normal banking and economic conditions.

At present, the analysis of what will happen in the banking system and in the loan market is based on the belief that the RBA will maintain the current cash rate until 2024. Therefore, there is no would not have a variable increase in the mortgage rate before 2024.

I think it is possible, but if our economy continues to grow at a rapid rate and the demand for real estate continues to rise in prices, then first APRA will force banks to play hard with loans to eliminate the market heat.

However, if the economy is growing so fast that inflation is rising much faster than expected (and that’s a guess for all economists, the Treasurer and Dr Phil at the RBA), well, the cash rate will have to. increase and this will send the variable interest rate upward.

This will be the first sowing of the seeds of the next recession and the next stock market crash, but I won’t worry about it for a few years at worst and four years at best.

These interest rate hikes for variable home loans won’t happen overnight, but they will.

Best advice if you’re worried about interest rates? Watch this place!

And if you want to know the cheapest variable home loans right now, take a look:

  • Variable: Homestar Gold Home Loan at 1.79% with a comparison rate of 1.84%.
  • Fixed 3 years: UBank with an announced rate of 1.85% but the comparison rate is 2.24%.

About Christopher Easley

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