The Reserve Bank of Australia (RBA) hinted at the official cash rate hike to be appropriate in 2023. But Australia’s major banks believe this may happen sooner, causing a seismic shift in the lending industry as interest rates in fixed loans saw an increase.
Like a domino effect, if a couple of big banks implement rate hikes, others will follow suit. From there, banks like ING began lifting their 1- to 5-year fixed rates by around 0.05% to 0.2%.
This is a clear indicator for lenders and mortgage holders that the days of super-low fixed-rate loans are numbered.
Why Banks Hike Fixed Interest Rates
As stated, the RBA’s report on the possible official cash rate hike led banks to speculate that it’ll happen sooner than later. That’s why Australia’s major lenders are now adjusting their fixed loan rates to cope with the expected rise in funding expenditures.
In other words, lenders are lifting interest rates before they begin noticing the margin squeeze. That’s why potential borrowers should be more careful and decisive in choosing loan rates.
If they decide too late and every lender has adjusted loan rates, there will be less attractive loan alternatives. Our experts at Plan A Mortgage recommend fixing your interest rate for two years or more. That way, you’ll still pay a relatively lower rate even if the official cash rate hike has taken off.
Variable and Short-Term Fixed Interest Rates Slashed
While fixed rates saw an inevitable increase, variable rates for home loans offered by major lenders simultaneously decreased. Some banks also slashed short-term fixed rates by about 0.1%, particularly for borrowers paying principal and interest.
The reason behind that is to attract more customers for variable-rate loans and fixed-rate loans that will fall behind the predicted cash rate hike. Lenders can always increase and adjust their interest rates when needed with a variable-rate loan, but they can’t do the same for long-term fixed-rate loans.
What Should You Do?
A domino effect is inevitable once the leading banks make a drastic move. Since the seismic shift is still early, you can still find ways to minimise your spending for the long term.
If you are considering a fixed-rate loan option, we recommend reaching out to us at Plan A Mortgage as soon as possible. Our specialist mortgage brokers are up-to-speed about the latest lending rates and can run you through all the loan options that best suit your needs.
Speak with us today, and we’ll let you know how we can help.
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