Interest rates - What goes down must come up. - Loans My Way
Reserve Bank of Australia

Interest rates – What goes down must come up.

April 7th, 2014

With the current interest rate lows moving in to record territory, many first homebuyers and new entrants to the mortgage market may be in for a rude shock when interest rates move into more normal territory.

Most variable rate lending products are sitting in the high 4 to low 5% range currently, but borrowers should take stock that historic rates in a neutral economy are normally between the 6-6.7% range on a discounted variable rate.

A lot of the shrewd and more highly exposed borrowers are looking towards fixing at least a portion of their loans to look to manage the risk of increasing rates. Because even though we don’t have a crystal ball, if we model the future off historic rate movement, any fixed rate under 6% for 5 years or under 5.3% for three years over the past 50 years would have seen the customer have a win, or at the very least not have a loss.

So try to look at fixed rates in terms of where rates are headed over the fixed period as opposed to where they are now. Because rest assured, they won’t stay low for ever. There are certain rules around fixed products you need to be aware of, so any decisions should be discussed with a lending professional.

Below is a link to an article by Greg Jericho analysing the RBA’s latest decisions.

The opinions above are those of the author and do not constitute financial advice. Any decision on your financial future should be carefully considered and advice and relevant research carried out.  

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