Believe it or not, we have had 6 straight years of falling home loan interest rates BUT it all might be coming to an end in 2017. A growing number of economists and forecasters believe the next interest rate move by the Reserve Bank of Australia will be up.
The RBA has cut interest rates every year since 2011. In the last few weeks, however, several banks and building societies have started increasing interest rates on both fixed and variable products before the RBA has made any moves.
Economists and the markets believe there is only a 10% chance of the Australian cash rate to be reduced this year. On the other hand, they believe there is a 63% chance interest rates will rise by February 2018.
There are several factors contributing to this, including a strengthening American market, strong property price growth in Australia and movements in the Australian dollar that influence where the home loan interest rates are going.
At Red & Co, we offer all of our clients an annual mortgage product and rate review to make sure their current home loan is competitive in a market where banks are increasing fixed interest rates, and becoming more competitive domestically.
Red & Co’s Home Loan Specialist Shoheel Khan believes it is imperative for home owners to be checking their loans at least once per year to ensure they are on the right loan.
Shoheel believes, “like you, your home loan will change over the years as your own priorities shift. When you are buying your first home, a particular type of loan might be suitable for this life stage, whereas when you are looking to buy an investment property you need to look for a different type of loan so it’s important to stay up to date with the latest products that suit your circumstances.”
“This is why, as a part of our annual review, we chat to our clients and ask what they are planning in the year ahead to make sure their current loan is the right one for them.”
As part of this service, we look at the following factors to help our clients minimise their interest expenses and maintain strong performance of their portfolio:
- Make sure you check your home loan rate: So often borrowers will just leave their loan on autopilot and not realise their interest rate has gone up, or product type has changed. Ideally, you should be looking for a rate below 4.50%, with some lenders still having rates below 3.99%.
- You need to be prepared to negotiate with the bank: As a part of the Red & Co review process, we contact the bank and have that uncomfortable conversation on your behalf to negotiate the rate down.
- It could be worth considering a fixed home loan rate: If you prefer to have stability and lock in your loan costs for 1, 2, 3, 4 or 5 years then maybe a fixed rate is worth thinking about. Having said this, there are some limitations to fixing your interest rate that you need to consider.
- Try to make additional repayments on your loan: Assuming you have a variable rate, paying only an additional $15 or $30 per week can result in a massive saving over the total life of your loan. For instance, if you repaid an extra $30 per week on a $300,000 loan, you would cut 2 years and 10 months off the term of the loan and put $22,342 in interest savings into your pocket.
- Stay up to date with the latest economic news: You shouldn’t listen to (and panic over) everything you hear on the news, but it is worth staying up to date with rising inflation in Australia and the United States as this is generally a trigger for interest rates to go up. The Reserve Bank has a target inflation rate of between 2% and 3% so if it goes above 3% the RBA has historically put rates up.
All of these factors can help with making sure you are aware of where home loan interest rates are going, and you can pay down your home loan quicker or increase the return on your rental property.
If you’re thinking about refinancing your loan, call Shoheel Khan on 0418 110 870 to discuss the options available to you.