With interest rates dropping, is it time to pull the cord?

With interest rates dropping, is it time to pull the cord?

interest rates fixed variable

Fixing your home loan while interest rates are dropping is a bit like pulling the ripcord on a parachute. If you do it early you’ll get a steady ride but may miss out on a bit of action. But if you leave it too late things might get a little messy.

To fix the rate or not?

That seems to be the question on a lot of people’s lips at the moment.

We’re half way through 2019 and already 44 lenders have dropped rates on more than 500 fixed-rate home loan products.

These discounts aren’t just being offered by smaller lenders trying to attract new customers, either.

Commonwealth Bank, Westpac and NAB have all announced significant fixed rate cuts, over the last couple of months.

To fix or not to fix?

When there are so many lenders scrambling over each other to cut rates, a question we often hear from clients goes something along the lines of: “Is now a good time to lock in a rate?”

While we’d love to be able to give you a definitive answer on this, the fact of the matter is that it depends on your individual circumstances, preferences and home loan.

Let’s quickly run you through a few important considerations below.

What will the RBA do?

The first factor to consider is that these cuts were made out-of-step with the RBA.

That’s because June was the first time that the RBA has changed the cash rate since August 2016, to 1.25%.

Some economists, including AMP’s Shane Oliver and NAB’s Ivan Colhoun, predict the RBA will cut the official cash rate twice to 1% before the year’s end.

With that said, nothing is certain. It wasn’t too long ago that most pundits were predicting that the RBA was going to move the cash rate upwards rather than downwards.

The pros and cons

Locking in a fixed home loan means that it doesn’t matter whether or not the official rate goes up or down, you won’t be affected.

It can give you a sense of clarity and certainty, and as such, can help you budget and plan ahead for up to the next five years.

You might prefer a fixed home loan rate if you:

  • are comfortable with the interest rate offers being currently spruiked by lenders and won’t suffer from FOMO (fear of missing out) if rates drop further
  • prefer to accurately plan your finances in the short and mid-term
  • are concerned that you would be unable to make your repayments if rates were to rise.

However, you might prefer not to lock in a rate if you:

  • are confident interest rates will continue to fall over time
  • don’t mind having some unpredictability in your financial planning
  • prefer to go with market rates.

Give us a call

If you’re still unsure on what’s the best option for you, or you’d like us to run you through some of the home loan rates currently on the market, then give us a call.

As we touched upon earlier, lenders have dropped rates on more than 500 fixed rate home loan products so far this year, so the market is constantly shifting.

We’d be happy to look at your current home loan and run you through how it compares to some of the other products on the market.

Social media teaser: Lenders have dropped rates on more than 500 fixed-rate home loan products this year, but is now a good time to lock in a rate? We discuss in our latest article.

Will lenders pass on the RBA interest rate cut to you?

Will lenders pass on the RBA interest rate cut to you?

The RBA has cut the official cash rate to a new record low of 1.25%. But hang on a sec… Will lenders even pass on the cut in full? Today we’ll look at how you can make the RBA rate cut work for you.

The Reserve Bank interest rate cut to 1.25% – down from 1.5% – which is the first rate cut in almost three years (since August 2016).

“The Board took this decision to support employment growth and provide greater confidence that inflation will be consistent with the medium-term target,” said RBA Governor Philip Lowe in a statement.

But will the banks pass the cuts on?

Well, that’s to be determined by the banks. However, the government has urged them to pass on the cuts in full to customers.

Treasurer Josh Frydenberg met with Commonwealth Bank chief executive Matt Comyn the day before the cut was announced after similar meetings with other major bank CEOs.

“I expect all banks to pass on the benefits of sustained reductions in funding costs,” said Mr Frydenberg.

What next?

Well, on the back of the RBA decision, you may see a number of lenders advertising interest rate cuts.

What can be hard to determine is if they’re offering to pass on the full cut, a partial cut, or simply re-advertising a rate they’ve been offering for months.

So what to do?

Well, the good news is that we’re following the market closely. We’ll know which lenders are passing the rate cut on to their customers in full, and which lenders aren’t.

So if you see or hear about a rate cut from a lender that you want to know more about, your best bet is to get in touch with us and we can give you a good idea of how it compares to other lenders in the market and/or whether there are other options that are more suited to your situation.

Home loans: to lock in the rate or not?

Home loans: to lock in the rate or not?

With some of the major lenders recently lifting interest rates on variable home loans, we’ve had a number of enquiries this week as to whether now is a good time to lock in an interest rate.

As predicted, Westpac’s recent decision to increase variable home loan rates was soon followed by Commbank and ANZ.

NAB was the only Big 4 bank not to hike up rates, citing a need to “rebuild trust” with customers.

Yet with the bulk of the market moving variable rates up, many are asking: is now a good time to lock in an interest rate?

Well, like everything in life, the answer depends on your personal situation.

Fixing the rate

A fixed home loan has an interest rate that’s fixed at the time the loan was taken out and won’t change for a set period – usually one, three or five years.

Having a fixed home loan means that rate rises won’t affect you.

Selecting a fixed home loan can give you a sense of clarity and certainty, and as such, will help you budget and plan ahead.

So, while others are grumbling about rising interest rates, you can be content knowing you won’t be affected. That said, future interest rates rises are never a foregone conclusion.

You might prefer a fixed home loan rate if you:

– Believe interest rates will rise in the future

– Are comfortable with the interest rate you are committing to pay

– Prefer to be able to accurately plan your finances in the short and mid-term

– Are concerned that you would be unable to make your repayments if rates were to rise.

Variable home loan rate

A variable home loan has an interest rate that changes. Instead of staying at a certain fixed level, the rate will move according to market interest rates.

As a result, your repayments will either rise, fall, or fluctuate over the term of your loan. This means that sometimes you’ll pay more than a fixed loan, while other times you’ll pay less.

Variable loans can come with advantages linked to their flexibility.

For example, it can be cheaper and easier to switch loans if you find a better deal elsewhere than it would be if you had a fixed loan.

Often you’ll also be able to make extra repayments on your loan at no additional cost, which can help you pay off your loan more quickly.

You might prefer a variable home loan rate if you:

– Suspect interest rates will stay put or fall over time

– Are unsure about interest rate movements and would prefer to go with market rates

– Are confident you could manage a rate rise

– Don’t mind having some unpredictability in your financial planning.

Still on the fence?

With so much at stake it can be difficult to decide on the best option. The solution? Come and have a chat with us.

Discussing your individual circumstances and financial goals can help you decide whether a fixed or variable loan is right for you.

And if a fixed loan is not right for you, we can look into other refinancing options to see if there are other lenders out there offering a better home loan rate than the one you’re on.

3 Questions to consider before refinancing

Who would have ever thought we would see one of the big 4 banks offering an interest rate of 3.59%.  Without a doubt their are opportunities for you to save significant money on your home loan.

Now is the time to refinance…..  Or is it….

Watch on as I discuss 3 questions you should ask yourself before refinancing your home loan.

If you would prefer to read instead of watching the video, scroll down to see a transcript.

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Transcript

Hello, Brendan from Buyers Choice, your home financing specialist.

This week, I want to have a chat about refinancing.

Given the current climate we’re in, the number of offers out there from various lenders, a common discussion I have with various people is, is now a good time to refinance?

If you’re thinking about refinancing, I think there’s three questions that you should ask yourself before committing to refinancing your home loan.

Question 1

The first one is, has your finances changed? Have you received a pay increase? Have your expenses gone up? Your child’s moved from primary school to high school, or they’ve decided to start eating twice as much food. Have you had a new baby come into your life?

There’s various things which could have happened which changes your financial situation. As a result, it may mean it is a good time, or it could mean that it’s a poor time to refinance your home.

Question 2

The second question you should be asking yourself, will refinancing save you money?

Now, I have previously done a video on the costs which you incur when you refinance your home. It isn’t a zero-sum gain. There’s also, and I’ve mentioned this previously, the fact that if you’re over an 80% loan-to-value ratio, LMI will be involved, so Lenders Mortgage Insurance.

So between that and the cost of refinancing, it could cost you from $1000 to a couple of thousand dollars to $10,000, depending on the size of your loan and your circumstances, to refinance.

Now, if you’re, found a great new rate, and you’re saving $50 a month by refinancing your home loan, but it’s gonna cost you $1000 to refinance, is it worth it? Is it worth your time and effort, getting all the information together, putting it all together, submitting the application, going through all that, for something which is gonna take you 20 months to pay off?

No, you’re better off staying where you are. So it’s a consideration that you gotta put into mind.

Question 3

The third question you should ask yourself is, are you planning on selling your home in the near future?

And again, it’s around, if your plan is to sell, move on, upgrade, do whatever, now may not be the best time to refinance. There’s a lot of effort, you’ve gotta get all the paperwork together, you’ve gotta put the application in, you’ve gotta go through the process.

If you’re going to a new lender, you’ve gotta set up all your accounts and everything else. So as a result, if you’re considering selling your home in the near future, or your loan’s starting to get small, there’s only a small amount still to be repaid, it may not be worthwhile refinancing.

We look around and we see these great rates. Save an extra 0.25% here, fix it for three years at this new, never-before-seen and never-be-seen-again interest rate.

But unless there is a benefit to us, it’s not worth doing.

So next time when you’re thinking about refinancing, think about these three questions again.

Has your financial situation changed?

Are you going to save money by refinancing?

And are you looking at selling your place in the near future?

And if those answers don’t add up to you, just put it on hold until the next time you review your home loan.

Anyway, Brendan from Buyers Choice, great talking to you again today.

Please hit like to this video, and if you’ve got any questions, feedback, please leave a comment below.

Look forward to talking to you next time. Have a wonderful day.