Fixed Rate or Variable Rate Home Loans - Your Choices

If you are on a variable rate home loan, please consider the option of capping (fixing) your mortgage rate now.

Home loan interest rates may move up in the next 12 months. The home loans interest rate cycle is best understood by looking at what drives the interest rate cycle and therefore what to expect in the future.

Why variable rates vary: click here

Home loan interest rates are at the lowest levels for 2 decades and have been basically on hold for almost a year. The solid Australian economic growth has seen real wage rises plus property increase in value, but without any real increase in inflation. Now add to this mix the huge oil price increases and you may see inflation start to bite and this may fuel an increase in interest rates.

The Reserve, which sets the general level of variable interest rates to keep the economy growing steadily, reckons it needs to keep a lid on household borrowing and guard against rising inflation.

The good news is that analysts expect only a small rate rise – probably 4 rises over 12 months of 25 basis points or about 0.25 per cent more on a typical home loan. A 0.25 per cent rate rise would add $16 in monthly repayments for every $10,000 of debt. A total of 1 per cent rate rise would add $64 in monthly repayments for every $10,000 of debt.

Signs that the long property boom is slowing may further limit the amount of further rate rises.

The Reserve Bank weighs up its choices. It is influenced by:

• Growth or stagnation of the property market.
• What is happening with interest rates in the USA and Europe.
• The rate of economic growth here and overseas.
• Inflationary impact of oil price increases as the cost of energy feeds into the whole economy
• What impact higher rates would have on business investment and confidence.

Home Loan Information Index

• Why variable rates vary: click here
• Tips for beating home loan interest rate increases

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