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Fixed Rate home loans – May 2021

fixed-rate home loan

With some attractive fixed rates available at the moment, it’s likely you’ve thought about fixing in some (or all) of your existing variable rate loan. Which then raises questions like, “But what are variable rates likely to do over the short-medium term?”

Let’s take a look at that question a little closer.

Please note analysis and commentary on interest rates provided here is based on data available as at 28 May 2021.

 

Cash Rate Futures Yield Curve

The Cash Rate Futures Yield Curve is a tool we use to provide insight into how the market expects interest rates to behave. More specifically, it reveals market expectations of RBA Cash Rate movements over the next 18 months.

The curve does not always accurately predict the cash rate (nor the exact time the RBA will decide to change it). However, it’s a useful tool to keep an eye on – especially if you watch for how market expectations change over time.

The Yield Curve at 28 May 2021 as per below, indicates an expectation of a Cash Rate reduction July 2022.

Minutes from the RBA’s Meeting in May, confirm the Board will decide on the next stage of its Yield Curve Control and Quantitative Easing policies at their July meeting. However, comments also suggest that the cash rate will remain at 10 basis points for as long as necessary.

“The Board remained committed to doing what it reasonably could to support the Australian economy, and would maintain highly supportive monetary conditions until its goals for employment and inflation were achieved. Members affirmed that the cash rate target would be maintained at 10 basis points, and the rate of remuneration on Exchange Settlement balances at zero, for as long as necessary. The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth would need to be materially higher than it is currently. This would require significant gains in employment and a return to a tight labour market. The Board viewed these conditions as unlikely until 2024 at the earliest.”

 

What does this mean for variable interest rates offered by lenders? 

The analysis suggests it’s unlikely we’ll see a decrease to the RBA cash rate anytime soon. Whilst a change in the cash rate is not necessarily reflected with an equal change in the rates offered by lenders, RBA rate projections can be used as a guide.      

 

What does this all mean for you and your loan? What does is mean for fixed vs variable loans?

Since we can’t be sure for certain what rates will do (or when), we suggest taking a ‘broad picture’ approach when weighing up your fixed vs variable decision.

Some of the fixed rates available right now are very attractive – due to the significant interest saving when compared to variable rate loan.

There’s always more than the rate to consider though, as fixed rate loans typically don’t offer as much flexibility as a variable rate.

 

If you’d like some help to determine which option is going to suit you best, let us know.

We’re here to help.

 


You can read more here:

https://www.asx.com.au/data/trt/ib_expectation_curve_graph.pdf

https://www.rba.gov.au/monetary-policy/rba-board-minutes/2021/2021-05-04.html

 

This post was published 30 May, 2021. This information here is provided for general purposes only and does not constitute financial advice. Before any specific lending or loan structure is recommended to you personally, a Preliminary Assessment would need to be conducted to ensure any credit advice provided by MO’R Mortgage Options Pty Ltd is not unsuitable for your specific financial situation.

 

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