Are interest rates rising as early as next week?

Much has been talked about in regards to the likely increase in the cash rate by the Reserve Bank and flow on affect to bank home loan rates and ultimately our repayments.

Up until recently, the speculation was that interest rates may start to rise from August onwards this year. However, in recent days, conversation has intensified that we may see the Reserve Bank act at the next meeting the first week in May.

This has come off the bank of inflation hitting 5.1%, jumping 2.1% this quarter. Pressures have been mounting from rising fuel costs and and shortages in building supplies, labour and increasing freight costs. It is argued that international factors have largely influenced this inflation surge.

The point to take away for home loan customers? Rates are going up. It's just a matter of when. There are many home loan customers who have never experienced a rate rise having taken out their home loans in the last 5 plus years.

There are also a large number of customers who will find themselves coming out of fixed rates in the foreseable future. For the majority of fixed rate loans, these revert to a higher standard variable rate beyond that which is on offer - a consequence of locking in the low fixed rates.

So what can home loan customers do? Hopefully during Covid and with the historic low interest rates we have had for a number of years, customers may have built up a buffer either sitting in an offset or directly in the loan itself. This can give some breathing room.

For those coming out of fixed rates, firstly understand your rate is likely to be significantly higher than what you have been repaying. This means your repayments will noticeably jump. Consider your options a month before you come out of your fixed rate as you may be able to avoid these high revert rates by refinancing to a better option.

Home loan customers must be nimble and manage their expectations. Understand that the historically low interest rate world we have been living in for many years may soon become a thing of the past and as such, you need to be ready and willing to act.

Speak to your broker.