With plenty of pundits tipping interest rates will start to fall in the next 12 months, we look at why the big banks are hiking their fixed rates – and unpack what it means for the rate outlook.
The past few months have seen interest rates on fixed home loans deliver more ups and downs than a rollercoaster.
As recently as April 2023, a number of lenders were starting to cut their fixed rates.
Fast forward to July, and the major banks – NAB, Westpac, ANZ and the Commonwealth Bank – have all upped their fixed rates in the past fortnight.
Now you won’t find a fixed rate below 6% among the big four banks.
But aren’t interest rates expected to fall?
Home owners battling high rates are generally being urged to “hang in there” because interest rates are expected to slide down from their current highs over the next 18 months.
Westpac is predicting the Reserve Bank’s cash rate will drop to 3.85% by the end of next year.
Better still, NAB is anticipating the cash rate could dip to 3.10% by late 2024.
So … why are fixed rates rising then?
Some lenders are stepping up their fixed rates because they believe rates may go higher before they trend lower.
NAB and Westpac are both tipping the cash rate, currently sitting at 4.10%, could go as high as 4.60% by the end of the year.
Over at the Commonwealth Bank, the expectation is for one more rate hike, taking the cash rate to 4.35%, with a chance the cash rate may ratchet up to 4.60%.
This can all be confusing. The main point is that the prospect of rates heading higher before they head south again is a key factor driving some fixed rates higher.
What should I do?
The first step is to bear in mind that forecasts are just that – predictions. Not even the banks have foolproof crystal balls.
And the recent news that inflation slowed in the June 2023 quarter, with quarterly price rises being the lowest since September 2021, could see the Reserve Bank ease back on the interest rate dial. It could even bring fixed rates back down.
It’s also worth pointing out that not every lender is lifting their fixed rates.
A number of smaller lenders have trimmed their fixed rates, with some still offering rates below 6.0%.
That’s why it’s so important to get in touch so we can help you explore a wide range of lenders and loan products.
Your next step
Locking in your loan rate can bring certainty to your budget, and eliminate the stress of the rollercoaster rate ride.
If you’re not sure whether to go variable or fixed – or a combination of both – get in touch to see how the numbers stack up for your situation.
Here’s a quick experiment.
Go pick up three balls and try to juggle them. Most people, besides those who ran away to join a circus, will likely drop at least one of them within a few tosses.
Now put two of the balls aside and throw the remaining ball up and down (with one or both hands).
Much easier to manage, right?
Well, it’s not too dissimilar to the concept of debt consolidation.
If you have more than one loan – be that a credit card, car loan and/or a personal loan – you can help reduce the stress of juggling multiple debts, payment dates and interest rates by rolling them into one easy-to-manage loan.
There are other benefits, too
One common debt consolidation method is to take out a new personal loan and use the funds to pay off your other existing debts.
Now, if the interest rate on the new personal loan is lower than the rate on your existing debts (for example, a credit card with a 17.99% interest rate) this can help you pay less interest each month – not to mention avoid the nasty late payment fees that come with those kinds of cards.
And by rolling all your debts into one, you can get a clearer timeline of when you can be debt-free.
Debt consolidation can also make it easier for you to manage your household budget, as you only need to factor in repayments for one debt per month instead of many.
Refinancing your home loan for debt consolidation
Another method people use for debt consolidation is rolling it into a refinanced home loan, because mortgages offer comparatively low-interest rates.
So if you’re really struggling with multiple debts right now – such as a car loan or a number of credit cards – consolidating your debts into your home loan will, in most cases, reduce your overall monthly repayments.
However, here’s a big word of warning.
While this option can reduce your monthly repayments now, debt consolidation through your mortgage can turn a short-term debt (like a personal loan) into a much longer-term debt.
As such, unless you aim to make a lot of extra repayments as soon as possible, you could end up paying significantly more interest than you would have otherwise.
One way to address this issue is to create a loan split for the debt consolidation, giving you the ability to pay off all the short term debts within a few years, rather than, for example, over a 25-year home loan period.
So if you’re in need of breathing space now, debt consolidation is an option to consider – especially with mortgage rates so low at present due to the RBA’s official cash rate being at record low levels.
Get in touch today
If you’d like to explore your debt consolidation or refinancing options, then get in touch with us today and we can help you look at ways to take some financial pressure off your shoulders.
It’s also worth noting that lenders are providing mortgage holders impacted by COVID with a range of hardship support measures, including loan deferrals on a month-by-month basis.
Whatever your circumstances, we’re here to support you however we can through these times.
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