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Why fixed-rate mortgages could be set to rise

Analysts believe that the Reserve Bank of Australia may need to take action on fixed-rate mortgages monetary policy sooner than expected. This will impact how property investors approach the market. As the economy rebounds, it is essential to watch what the Reserve Bank proposes to do.

Why fixed-rate mortgages could be set to rise

“To the extent we get a faster reopening, then the economy gets back on its pre-Delta track faster, which then has the effect of potentially bringing forward RBA monetary tightening,” explained AMP Capital chief economist Shane Oliver. With two more meetings scheduled for 2021, Dr Oliver said that the RBA may wait until its first meeting of 2022 in February before cutting back its weekly bond-buying program. He also expects the central bank to be closer to removing its 0.1 per cent yield target for the April 2024 government bond in the coming months.

While the market is factoring in interest rate rises from the second half of 2022, Dr Oliver said this seemed “a bit premature” and is instead expecting an increase in 2023.

The RBA has been saying they don’t expect to raise rates before 2024, but there is a substantial risk that it could come earlier than that. If the recovery is brought forward due to the reopening following the latest lockdowns, then it could mean we get to full employment faster, therefore, faster wages growth, which would allow an earlier rate hike than 2024 or later.

Variable home loan rates have predominantly been an area of focus in the past, but over 40 per cent of new home loans in recent times have been at fixed rates, which will likely be impacted by higher bond yields.

Major banks, including the Commonwealth Bank, Westpac and ANZ, have already moved to increase fixed mortgage rates by up to 35 basis points in response to inflation fears.

Tips to reduce your fixed-rate mortgages

Tip 1. Find The Cheapest Home Loan You Can – But Be Sure to Take Both Rates and Fees into Account.

It would be so much easier to decide which home loan you should use if you could easily compare interest rates and fees. But it isn’t easy! There are all sorts of deals available for all kinds of loans, and it’s a giant job wading through all the documentation to find out the real interest rate and to uncover all of the fees. While one loan may have a cheaper interest rate, it may have higher monthly fees. Another may have exit penalties. Another lender might tempt you with a cheap short-term rate but then charges high-interest rates and high fees after that period elapses.

The best way is to have an expert do it for you. The right loan broker spends every day comparing home loans, and using their knowledge, computer modelling and loan comparison expertise to find the cheaper loans that will work.

Tip 2.  Making Extra Repayments (Even Small Ones) Can Make a Big Difference.

Paying extra off your home loan – either on a regular basis or with the help of a one-off financial windfall – can save you a small fortune in interest repayments over the long term.

Tip 3. Use Surplus Income

Can you afford to pay a little extra off your home loan each month? Even reasonably small amounts can make a big difference because the extra you pay comes straight off the principal – and this will result in ongoing interest savings.

Tip 4. Take Advantage of Falls in Interest Rates

If interest rates and your required monthly repayments fall, try to maintain the old monthly repayment to make extra repayments.

Tip 5. Pay Fortnightly Rather Than Monthly

This useful little strategy works because you effectively pay an extra month’s repayment each year. You simply divide your monthly repayment in two and pay that amount every fortnight. Because there are 26 fortnights in a year, but only 12 months, you end up paying extra off your home loan each year. The key to saving the most money is to ensure you use the combination of strategies that best suit you, your family and your budget.

At Investax, we have our own in-house mortgage broker. Contact us today to find out if you are paying too much interest on your home loan.

If we can assist you with any information on this matter or can assist you in any other way, please do not hesitate to contact us by phoning 02 8651 8000 or via e-mail to [email protected] Or

We offer a 15-minute free consultation to discuss your tax, property investment and business needs. Book your complimentary consultation now.
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