21 Jan What the new interest rates mean for you
You may have read in the media that interest rates have increased recently. If you have a mortgage, this will be the last thing that you want to hear, so we’ve decided to undertake some research so that you are better equipped to respond to mortgage interest rate rises.
The first thing you probably wnat to know is if you should switch to a different mortgage provider.
A study reported by NineMSN found that homeowners would struggle if interest rates rose by just 0.5%. Whilst you may think that those in poorer suburbs would fare the worst, it’s actually homeowners in wealthier suburbs who would find it tough. They are often up to their eyeballs in debt and the loan values are much greater, therefore a small hike has greater impact than it would if you had a cheaper mortgage.
The threat of a mortgage rate increase could cause you to lose your home, or at best, it could cause you stress, so should you fix your home loan to avoid a mortgage rate? MoneyMag says that the culture regarding mortgages in the United States is different to that of Australia. In Australia, we’re less likely to fix our mortgages – and research has proven that a floating rate is actually better for mortgage holders, who are better off 63% of the time.
Those make for some interesting odds. Of course 37% will be better off fixing, but when you take out your mortgage, you need to ask yourself a few questions before deciding if you will fix or float.
ASIC’s MoneySmart website says that you should be prepared for the following:
1 – Budgeting will be easier – This would be a major motivator for a lot of people. You’ll have peace of mind knowing that your rates are never going to increase.
2 – You won’t care if the Reserve Back of Australia (RBA) announces rate rises. In fact you’ll probably quietly smile to yourself thinking, “phew, I’m so glad I fixed my rate.”
On the flipside though, these things may frustrate you:
1 – You’ll get frustrated if rates decrease. You’ll be mentally performing calculations in your head about what you could and couldn’t pay, and where your money could otherwise be spent.
2 – You may not be able to make extra repayments. That’s right. You may only be able to pay as per the loan agreement.
3 – If you do find you want to pay off the loan within the term, there will be break fees.
There are so many pros and cons to fixed and floating rates. It all depends on what’s most important to you. However if you’re not sure of what to do, give Steven Phang a call or send him an email for a consultation.