Is it too late to fix your home loan before interest rates rise?

Mortgage rates are rising faster than homeowners and potential home buyers can lock in better deals.

Brokers say borrowers are nervous about the prospect of higher interest rates, but by the time they try to fix at an attractive rate, banks have already lifted their pricing.

Lenders have raised fixed rates several times since the Reserve Bank ended its emergency settings and increased their cost of funds last spring, and more pain for borrowers is ahead once the RBA increases the cash rate as early as this year.

Last year borrowers could lock in deals under 2 per cent for a couple of years, but the average two-year fixed rate on offer now is 2.71 per cent, on Canstar figures.

Variable rates, which are more closely tied to the cash rate, have fallen lately as lenders try to entice new customers, but are expected to rise once the cash rate increases from its crisis-era level of 0.1 per cent.

“Fixed rates are changing so rapidly at the moment, they’re changing before we can write a new loan,” Mortgage Choice Blaxland, Penrith and Glenmore Park principal Rob Lees said.

“That has been the experience of the last six months – they’re a moving target.”

Mr Lees spoke to one client this week who was planning to switch lenders, but the next day the product he had in mind lifted 0.6 percentage points.

“Every morning I turn on my computer, my inbox is full of lenders who have increased their fixed rates,” he said.

He recommends borrowers who can get a good deal from their current lender consider taking it, as making an application with a different bank takes a few days and rates may rise in that time. Someone who is switching may want to lock in the rate on the day, which can involve paying a rate-lock fee.

The warning comes as ANZ tweaked its property price forecasts, predicting an 8 per cent rise in 2022 and a 6 per cent fall in 2023, compared to a previous estimate of a 6 per cent rise and a 3.5 per cent fall respectively. The bank said higher mortgage rates would cap house price growth this year and the 20 per cent price rises of last year would not be repeated in the next 12 months.

Atelier Wealth managing director Aaron Christie-David said borrowers were becoming “hyper aware” of rising rates, as Commonwealth Bank economists forecast the first cash rate rise could come as early as June.

Some home buyers were being hit with a rate rise between applying for a home loan and a banker assessing the application, he said.

“It becomes incredibly frustrating to them: ‘I applied to this bank because they’re offering a fixed rate, and now they’ve increased it’. They don’t have that luxury of time, especially in a purchasers’ world.”

Mr Lees said others hoped the change could force their competitors to spend less at auction and take some steam out of the hot property market, allowing them to buy in.

He recommended buyers consider a split loan with a fixed and a variable component if it suited them, and said they should understand limitations of fixed loans, such as break fees if an owner needed to sell.

Andine Mortgage Brokers’ Andrew Kostanski said borrowers were not too late to fix their home loans if they wished, and has fielded several enquiries about doing so.

“It’s still a very good time to fix, and I haven’t said that many times over the last 20 years,” he said.

“The experienced people know that rates have never been lower.”

They could also ask their current bank about a better deal, he said, adding all major banks now offer brokers online discount approval systems where they can list a competitor’s rate and request a comparable price.

Mortgage Broker Sydney principal Michael Brown said most borrowers know there is a cash-rate rise coming, the only question is timing, after the cheapest deals have already dried up.

“It’s not too late to fix, but you’re going to need to make your calculations based on the full term,” he said.

For example, if someone locks in a price for three years, perhaps they are paying well above the variable deals on offer now, but may expect to be ahead once the Reserve Bank has finished hiking for this cycle.

“The one thing fixed rates have is they give you peace of mind of knowing what the cap on your cost is,” he said.

“I don’t think you can put your head in the sand and pretend it [a rate rise] isn’t coming.

“You’d be much better off having a discussion about whether or not it was appropriate to do something to protect your position.”


Article Source: