Mortgage rates are creeping up

Dec 17, 2013

As interest rates creep back up, borrowers are asking whether the fixed rate opportunity has passed.

Fixed-rate mortgages are having their time in the sun as historically low interest rates have encouraged property owners to lock in their home loans. But with mortgage rates starting to creep back up, is the opportunity coming to an end?

“Absolutely not”, says Mortgage Choice spokesperson Jessica Darnbrough. “While it is no secret that fixed rate pricing has started to climb slightly higher over the past few months, this type of rate remains very competitively priced.”

“For those looking for surety around their mortgage repayments, locking part or all of their mortgage into a fixed rate may prove a beneficial option,” says Jessica.

According to Mortgage Choice, the average three-year fixed rate is currently around five per cent whilst floating rates are hovering around 5.15 per cent.

Whilst there isn’t much difference between fixed and floating rates at the moment, buyers need to take a view on how today’s fixed rates will compare with floating rates in two to three years time.

Jessica says that whilst it’s impossible to predict where rates will be in the future, there is no denying that rates are already starting to climb.

“Over the past three months, the average three-year fixed-rate has climbed by approximately 10 basis points across all of the major lenders. This could suggest that the rate cutting cycle is nearing its end. As such, we may also see floating rates climb over the coming 12 months.”

The behaviour of interest rates is largely dependent on the state of the Australian economy, which has been showing signs of strength during the past quarter. If this continues both fixed and floating rates are likely to climb.

Buyers who believe that rates are on the up may therefore be sensible locking into a fixed mortgage.

How do you decide if fixed, mixed or floating is best for you?

The direction of rates is not the only thing to consider when deciding whether fixed or floating is best. Borrowers must consider the advantages and disadvantages of both in relation to their particular circumstances.

Jessica says borrowers should ask themselves the following questions when deciding whether to fix, float or split their loan:

  • Do you want or need predictable repayment amounts?
  • Do you anticipate any major changes to your family arrangements, job or business?
  • Are you thinking of selling your property in the near future?
  • Are you thinking of buying an investment property?
  • Do you anticipate making additional repayments on top of your monthly repayments?

Should you refinance if you’ve already got a mortgage?

Anyone who fixed their home loan around two years ago when rates were sitting above six per cent may be wondering whether they should refinance to take advantage of today’s lower rates.

One of the key considerations is the break fee your lender will charge you to exit your existing mortgage early. The amount you will pay is calculated according to the size of your loan, the term left and the profit the lender will loose by having to close out the loan.

Jessica says borrowers need to calculate whether the savings they will make at the lower interest rate will outweigh any costs they may incur.

Can you still have an offset account with a fixed-rate mortgage?

Offset accounts have proven very popular with borrowers as an effective way of reducing their monthly repayments, however they are more commonly attached to floating rate mortgages.

Jessica from Mortgage Choice says that some lenders will offer offset accounts with their fixed rate products, however it is important to note that these accounts will not offset 100 per cent of the mortgage balance.

“If a borrower is keen to have an offset account attached to their home loan, they could consider fixing part of their mortgage and leaving the other part variable and attaching a 100 per cent offset product to the variable loan,” suggests Jessica.

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