Variable rates have increased. Now we're seeing first of the fixed
Following the Reserve Bank increase to the cash rate on Tuesday, we have seen all big four banks increase their variable rates by 0.25% with a number of other lenders also following suit.
This is the first time in more than 10 years that we have seen the Reserve Bank increase the cash rate and for many home loan customers, it will be the first time they have experienced an increase in their variable rate.
The conversation around interest rate increases has now shifted with suggestions that we may see another increase by the Reserve Bank in June. which would likely be followed by the banks.
While all the activity that has occurred around interest rates since the Reserve Bank meeting on Tuesday has been focused solely on variable rates, we are now seeing several banks also lift their fixed rates. Fixed rates have been steadily increasing since early this year with many banks having increased several times. However, this is the first we are seeing of fixed rates increasing off the back of the Reserve Bank meeting this week.
Long gone are the 1.89% and 2.29% low fixed rates we were seeing early this year. Many fixed rates are now sitting low to mid 3% with longer term fixed rates with some banks above 4%.
It raises an interesting question about what customers should choose with regards to their home loan interest rate. The hope is that many people during Covid were able to save a backup of funds, given that usual expenditure on such things as entertainment and holidays was almost non-existent for the last 2 years.
However, not all customers are in this boat. Whether you decide to fix or stay variable and ride out these increases solely depends on your ability to afford rates as they start to rise as well as what your plans are with regards to your home loan. With fixed rates being highly inflexible and unable to be changed once in place, home loan customers need to ensure they do not make a knee jerk reaction with regards to their home loan rate.
You must speak to your broker to understand what the consequences are about variable vs fixed and have them find you the best possible option in this rising interest rate market.