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Fixed Rate home loans – Aug 2019

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 a little closer.

Please note analysis and commentary on interest rates provided here is based on data available as at 29 August 2019.

 

Cash Rate Futures Yield Curve

The Cash Rate Futures Yield Curve is a tool that provides some insight around the market expectations of future interest rate movements. More specifically, it reveals market expectations surrounding RBA Cash Rate movements over the next 18 months.

Of course, the graph does not always accurately predict the cash rate (nor the exact time a cash rate change will occur). However, it can be a useful tool to keep an eye on – especially to see how market expectations change over time.

The Yield Curve as at 28 August 2019 below, shows the market expects another cut to the RBA Cash Rate later this year.

fixed rates

As at 28 August, the trading price for the ASX 30 Day Interbank Cash Rate Futures September 19 contract, indicates a 11% expectation of an interest rate decrease to 0.75% at the next RBA Board Meeting.

If we review Philip Lowe’s comments from the RBA’s August Meeting, it’s reasonable to expect that interest rates will remain low for an extended period of time.

Lowe says, “Conditions in most housing markets remain soft, although there are some signs of a turnaround, especially in Sydney and Melbourne. Growth in housing credit remains low. Demand for credit by investors continues to be subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.”

 

What does this mean for interest rates offered by lenders? 

The analysis suggests it’s likely we’ll see further decreases to the RBA cash rate.

However, we all know this DOES NOT mean lenders will pass on any rate cuts in full.

This is because there has been a fair bit of pressure on lending margins recently (due to things like increased borrowing costs from overseas markets, increased labour costs to process applications – as a result of increased compliance, tightening of credit etc).

 

Should you fix your loan or keep it variable?

Since no-one knows *exactly* what rates will do (or when), we always suggest taking a ‘big picture’ approach when weighing up your fixed vs variable decision. 

Sure there are some attractive fixed rates on offer at the moment, but if locking into a 3 years fixed rate will stop you from achieving other plans, it’s probably not the best move.

For example:

  • Are you thinking of selling your home within 3 years?
  • How likely is it you’ll want to move away from your current lender in the next few years?
  • Is there a chance you’ll receive a lump sum cash payment and want to pay down your loan? (Fixed rate loans have limits on how much extra you can pay off your loan each year)

There are specific situations when a fixed rate loan may be beneficial (you can find them here).

There are other situations when a variable rate loan may be more suitable (we outline them here).

And then there’s the strategy of combining the best of both worlds and having some of your loan variable and some of your loan fixed.

 

We’d love to help you determine the best option for you.

Get started here.

 


You can read more here:

https://www.rba.gov.au/media-releases/

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

 

This post was published 29 August, 2019. 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 thorough 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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