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800,000 Aussie's coming out of fixed rates this year....

It's hard to comprehend. It was announced yesterday by the Reserve Bank that 800,000 Australians will be coming out of their fixed rates this year. This reflects two thirds of all home loan customers Australia wide whose fixed rates will be expiring across 2023.

Many of these home loan customers locked in historically low, home loan interest rates of 2% (some even at 1.89%).

These extraordinary low interest rates that many customers have enjoyed has given them the opportunity to make in-roads into their home loans like never before. For many, it got them through what was an extremely difficult,Covid-affected, 2 years. For many first home buyers, low home loan fixed rates gave them repayments which felt workable and often were lower than what they would have been paying in rent otherwise.

This is all going to come to a blunt and what might feel to be a very shocking end for so many home loan customers over the next 6 - 8 months.

The world looks very different now in regards to both variable and fixed interest rates. For many banks, their current variable rates sit at 5% and above. In regards to fixed rates, these are heading north towards 6% and above. With the Reserve Bank widely expected to raise the official cash rate next week, it is very likely that this will be passed on to home loan customers via higher rates.

What does it all actually mean in regards to the bottom line for home loan customers?

For a $500,000 loan it could mean a $500 - $600 per month increase in repayments. For those with larger loans, the figures are likely even higher.

With increasing cost of living pressures, the prospect of reverting out of a fixed rate into this current high interest rate market is daunting. And for some home loan customers, it is quite scary.

How long will this last? In Australia, the tactic or increases to the cash rate being used by the Reserve Bank to curb inflation, means that many customers directly feel the impact on these increases on the family budgets. In comparison, for many other countries also confronting high inflation and using rate rises to endeavour to combat it, the lower percentage of customer on variable rates means that those increases may be less widely felt.

Therefore knowing that so many home loan customers are going to impacted by the last 8 interest rate rises (plus with several more likely on the way), it is an extremely delicate balancing act that confronts the Reserve Bank. Push too far and with so many customers coming out of their fixed rates, it could hurt our economy and many Australian families beyond what is the intention. Where the damage done will be greater than what the goal was in the first place.

Indeed, 2023 therefore is going to be a very critical year for many families. And for the Reserve Bank to get it right. The alternative is one that will be too great for many of us to even contemplate.


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