- Current fixed rate offering tend be significantly higher than variable home loan rates
- Some borrowers will lose out over the long-term if rates don't peak above the level of their fixed-rate mortgages.
- Current borrowers should review their cash flow if concerned about further rate rises
Mortgage holders should exercise caution when fixing their home loan interest rate based on the current rates, says an award-winning mortgage broker.
Louisa Sanghera, 2021 Australian Mortgage Awards Independent Broker of the Year and Financial Director of Zippy Financial, said that the current fixed rate offerings tend to be significantly higher than variable home loan rates.
Ms Sanghera explained that some borrowers will lose out over the long-term if rates don’t peak above the level of their fixed-rate mortgages.
“The real winners were those property owners who fixed their interest rates last year,” Ms Sanghera said.
“Anyone wanting to fix the rates on their mortgages ideally should have done so last year when rates were in the one to two per cent range.
“Fixed rates are already in the four to six per cent range, depending on the fixed loan term, which is generally well above the current variable option in most cases – even after the three successive cash rate increases recently.”
She suggested that borrowers review their individual circumstances and seek appropriate advice before deciding whether fixing their interest rate is the right option.
“Borrowers should consider whether locking in these significantly higher rates is likely to benefit them in the long-term because no one knows when the current rising interest rate cycle will end,” she said.
Higher mortgage repayments are just starting to flow through to borrowers following the recent cash rate rises, she noted.
“The RBA won’t have seen any real benefits from the first rate rise yet, such as reduced spending, but they need to increase rates gradually so that borrowers can adjust to the new repayments.”
Ms Sanghera said it was a good idea for borrowers to assess their personal financial situation, including their cash flow and discretionary spending, and seek expert advice if needed to make sure their budgets adapt to higher mortgage repayments.
“It’s vital for borrowers to understand their household budgets to ensure they are well-placed for future interest rate adjustments,”
“This may include reducing discretionary spending now if they are worried about their cash flow, and potentially refinancing for a better home loan deal if and when is appropriate for them.”