When the cash rate dropped to 0.1 per cent in November 2020, the real estate market went gangbusters, with house prices experiencing enormous gains.
Despite spiralling house prices, the RBA has been hesitant to increase interest rates because it could cost jobs.
While the Reserve Bank is standing firm in its commitment not to lift the cash rate until the labour market improves, which it predicts will be around 2024, economists believe interest rates on mortgages will increase far sooner, regardless of the RBA. Many are predicting rate rises at the end of 2022 or early 2023.
However, the truth of the matter is fixed interest rates are already on the rise, with several lenders increasing interest rates on four and five-year fixed-rate mortgages. These rate increases are driven mainly by the cost for lenders to borrow money. As we settle into the new financial year, it now costs more for lenders to borrow the funds subsequently loaned to home buyers.
At Oxygen, we believe interest rate increases will happen even sooner than economists predict - as soon as September or October 2022. With border restrictions still in place and a much tighter job market, unemployment rates are dropping, which, in turn, will lead to wages growth. The State and Federal Governments are also spending big on infrastructure to stimulate the economy, creating more jobs.
With travel restrictions, Aussies are spending their surplus cash on other things like consumer products, stimulating the retail sector. And of course, with low rates and extra money, they're looking to property as well. House prices are continuing to rise, and we expect to see a growth of around 10 per cent in most areas by 2022.
For those just starting their home ownership journey, ensure you investigate the best rate possible now or lock into a competitive fixed-rate mortgage at the outset.
For those with an existing mortgage, it is worth starting to focus now on trying to renegotiate your rate ahead of any changes. In an ideal world, home-owners should review their mortgage every three years, and refinance where necessary to ensure they remain competitive.
For example, using the Oxygen Mortgage Switching Calculator just reducing your interest rate from 2.79% (principal and Interest) to 2.49% home loan of $500,000, could save you $83 per month and $29,840 over the life of your home loan1. If you reinvest those savings into your mortgage, you could pay it off one year and nine months sooner. In other words, it is a worthwhile exercise.
When doing your research, it is essential to look at the "comparison rate", rather than simply the interest rate. The comparison rate takes into account fees attached to the loan and features like offset and redraw facilities. The comparison rate is a more accurate reflection of the actual costs of the loan.
For new borrowers and refinancers alike, finding the best rate can be complex. While you can take the time to speak to individual lenders, or negotiate directly with your existing lender, using the services of an independent mortgage broker can save you time and money.
Independent brokers, from firms not owned by a major lender, can access home loan products from a wide panel of lenders, and are not bound to any particular lender's products. They can suggest the best loan for your circumstances. They can also help you understand the features and benefits of different mortgages and navigate the application and approval process much faster.
With the clock ticking on rising interest rates coming next year, now is the time to investigate some of the most competitive rates on the market and lock them in now.