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Fixed Rate home loans – February 2020

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 26 February 2020.

 

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.

Of course, 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.

As at 25 February, the trading price for the ASX 30 Day Interbank Cash Rate Futures March 20 contract indicates only 9% expectation that the RBA will decrease the cash rate to 0.50% at the RBA Board Meeting in March.

However, the Yield Curve at 25 February 2020 as per below, indicates an expectation of a Cash Rate reduction later this year.

 

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

Lowe says, “Due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board will continue to monitor developments carefully, including in the labour market. It remains prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.”

 

What does this mean for interest rates offered by lenders? 

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

Going on from the rate cuts we saw last year, we know that any decrease to the RBA cash rate is unlikely to result in an equal drop to interest rates across all lenders. However, it is something you’ll want to consider when weighing up the attractiveness of a fixed rate offer. 

 

So, what does this mean for *you* and your loan – Is it better to have a fixed or variable loan?

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 year fixed rate may prevent 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 refinance away from your current lender in the next few years? (Which can be a tricky question to answer, given the attractiveness of some refinance rebates offered right now)
  • 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)
  • What’s your capacity to save cash? (Even with an attractive fixed rate, borrowers can end up saving more interest by fully utilising the function of an offset account – something not typically available on fixed rate loans)

We’d love to help determine what option is going to suit you – and your property plans – best.

 

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 26 February, 2020. 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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