With the clock winding down to the Inauguration of US President Elect, Donald Trump, a quick update on Australian mortgage rate forecasting.
In the last 2 months we have seen most Australian lenders increase their home loan rates across their fixed products (2, 3 and 5-year fixed rates) and well as increases to variable rate products. This is inline with our prior forecast in November. Investor loans have had a higher hit, in part due to higher systemic risk, the APRA 10% annual volume increase limit (banks using price to temper strong demand), and simply less sensitivity to rate increases (it’s not going to stop investors given high house price growth and the ability to negative gear away some of the higher increase).
Based upon maintaining a margin above where the cash rate is expected to be (2.25% premium), the lowest discounted variable rates are, on average, expected to reach 5.70% within 10 years. This is an average case forecast with variation possibly up to 2% higher.
As we have discusses before, now is a great time to borrow with fixed terms for as long as possible as rates are low, the RBA is expected to consider interest rate increases (1 in 3 chance of a rate hike this year) and incumbent banks are increasing interest rates even without RBA rate changes. The cheapest variable home loans have already increased about 0.2% in the last 2 months.
We believe the best way to mitigate the risk of higher interest rates is by opting for one of our 10-year FlexiFix mortgages. The interest rate is fixed for 10 years but borrowers can repay, refinance anytime without break fees after 3 years. If rates don’t go up, go down or you feel more comfortable in being able to manage interest rate rises, then you can switch without facing any finance related costs from our side.
This can be done with a straight mortgage or with a split loan (part FlexiFix, part variable).
We will look at what happens to expected rates after the Presidential Inauguration. Many experts expect to see a few interesting changes over the next few weeks.
To find out more and be the first to obtain the loan when we launch, visit www.huffle.com.au