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After hitting record lows in 2020, fixed home loan rates started trickling back up in 2022 after the Reserve Bank dropped its 2024 guidance on increasing the cash rate and its Term Funding Facility (TFF) ended, and APRA bumped its serviceability buffer from 2.5% to 3.0%.
Although the cash rate is expected to stay on hold until at least 2023, it hasn’t stopped lenders from increasing their home loan interest rates, mostly on their fixed rate products.
Fixed interest rates are expected to continue rising sharply in 2022 before eventually stabilising after rates on three year fixed loans rose by over 80 basis points in the last few months of 2021.
With fixed-rate loans accounting for almost half of all new mortgages, it’s expected any further hikes will have significant implications on cash flow - particularly for those who took on fixed mortgages in 2020 (when rates were at their lowest) and will be required to refinance to significantly higher rates.
Is 2022 your last chance to lock in a low fixed rate?
One of the biggest reasons behind the popularity of fixed home loans is that the rate is fixed for a set period of time, protecting the borrower from hikes in the cash rate. Even a relatively small increase in the official cash rate can have a significant impact on mortgage repayments, which is why many borrowers opt to ‘lock in’ their rate for a fixed period of time so they can avoid this.
Locking in your mortgage repayments means you have cash flow certainty for a few years and can budget accordingly for the period you’ve fixed. However, it’s important to keep in mind that the cash flow impact of an interest rate rise will be more significant on your loan on your primary place of residence (PPOR) than on your investment loan, because of the tax deduction you receive for investment debt.
For example, if the interest rate on your $600k home loan were to increase by 1%, the cash flow impact is $6,000 p.a. However, if your $600k investment loan rate also increases by 1%, the cash flow impact after-tax is $4,000 (after your tax deduction).
As a result, it could be wise to consider fixing the rate on your PPOR home loan first. We offer a Smart Booster Investor Bundle which allows you to bundle your home loan with your investment loan. You can also choose to split this loan with one of our low rate fixed loans. By splitting the loan with one of our fixed-rate loans, you can safeguard against future rate rises with the fixed component, and also make additional contributions to pay off the loan faster while rates are at historic lows on the variable component.
The bottom line is that if you’re looking for rock bottom interest rates, you’ve likely missed the boat. However, in a few years time, the rates that are currently being offered could look like a pretty good deal. It’s important to do your own risk assessment and due diligence as an investor, but keep in mind that you don’t want to look back at this time in five years and wish you had locked in a low rate when you had the chance.
The good news is that right now, some lenders are still offering some excellent fixed (and variable) interest rates. At loans.com.au, we offer competitive investment rates.
Marie Mortimer is Managing Director of loans.com.au, one of Australia's largest online lenders. Since Marie started the business more than 10 years ago, Marie has grown loans.com.au into a company with $6 billion worth of home and car loans. Marie is dedicated to improving financial literacy for all Australians and is passionate about the FinTech industry in Australia. When she isn't at work, she loves to spend time with her husband and two young children.
loans.com.au is an online lender for home and car loans. For more than 10 years, Aussies have trusted the locally based loans.com.au team to support them with low home loan and car loan rates, approved quickly through the online loans.com.au app.