Reserve Bank holds but mortgage rates to rise

By webmaster

Interest rates have remained on hold for another month – phew – but the prospect of further rate rises, eventually, remains strong.

The Reserve Bank of Australia (RBA) left the cash rate on hold at 4.5 per cent when it met yesterday, despite expectations by many commentators that it would tighten its monetary policy stance.

While the official cash rate remains stable for now, many pundits are expecting the major banks to increase their home loan rates anyway in order to recoup higher funding costs.

“The attention of hundreds of thousands of households will now be on the banks,” HIA senior economist Andrew Harvey said yesterday.

With such uncertainty over rates, and the likelihood of hikes in the near future, demand for fixed rate home loans has been creeping upwards.

According to figures from broking group Mortgage Choice, fixed rates accounted for 3.7 per cent of all home loan approvals in September, the highest level in a year.

The rise in demand follows extensive reductions to fixed rates over the past couple of months.

Indications are, however, that the recent wave of cuts to fixed rates may be done and dusted.

Kristy Sheppard, spokesperson for Mortgage Choice, says fixed rates have been inching upwards over the past three weeks.

"Our lender panel's average interest rate for a three-year fixed term home loan – the most popular – hit rock bottom in mid-September and is very much on the way up.

“We have 24 lenders on that panel and 11 of those increased rates on one or all of their fixed loans over the past three weeks.”

These increases saw Mortgage Choice’s lender panel’s average three year fixed rate rise by 0.14 percentage points in the past three weeks, from 7.33 to 7.47 per cent. First home buyers looking to lock in a good fixed rate deal would do well to move quickly.

The benefit of a fixed rate means a degree of certainty around your mortgage repayments, allowing you to budget and manage your home loan, and shield you against any further rate rises.

Of course, depending on how long you fix your home loan for, you could face a substantially higher interest rate, when your fixed period ends, if interest rates are still on the climb.

Furthermore, fixed rate home loans usually encompass break fees, so locking in a fixed rate requires careful consideration. Make sure you base any home loan decision on thorough research.

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