Mortgage holders may need to think twice before fixing their interest rates

Mortgage holders considering fixing their home loan interest rate at the current rates on offer may need to think twice before doing so. The current fixed rate offerings are often significantly higher than variable home loan rates. She said this meant that some borrowers may lose out over the long-term if rates didn’t peak above their fixed rate mortgages.

Why is the timing wrong?

Property owners who fixed their interest rates last year are the real winners. Anyone wanting to fix the rates on their mortgages ideally should have done then when rates were in the 1-2% range. Fixed rates are already in the 4-6% range, which is well above the current variable option in most cases – even after the three successive cash rate increases recently.

Borrowers review their individual circumstances and seek appropriate advice before deciding whether fixing their interest rate was the right option for them at the present time.

Borrowers should consider whether locking in these significantly higher rates is likely to benefit them in the long-term because no one knows when the current rising interest rate cycle will end. Higher mortgage repayments were only starting to flow through to borrowers following the May increase given the delay in implementing the changes by lenders.

How can borrowers get a grip of their finances?

The RBA won’t have seen any real benefits from the first rate rise yet, like reduced spending, but they need to increase rates so that borrowers can adjust to the new repayments. It was a good idea for borrowers to assess their personal cash flow and discretionary spending, and seek expert advice, to ensure their budgets can adapt to higher mortgage repayments.

It’s vital for borrowers to understand their budgets to ensure they are well-placed for future interest rate adjustments. This may include cutting discretionary spending if they are worried about their cash flow, and refinancing for a better home loan deal when it is appropriate.

Louisa Sanghera is 2021 Australian Mortgage Awards Independent Broker of the Year and Zippy Financial Director and Principal Broker.