Over the last 2 years interest rates have been at their lowest level in our country’s history. Since the start of the pandemic in 2020 until September last year, fixed rates of less than 2% were offered by lenders for 2 and 3 year fixed periods. For anyone who decided to lock in a rate during this time, it seems you have made the right call.

Since September interest rates offered on fixed rate loans have steadily increased, with some rates offered increasing by more than 1%, even though the RBA has stated that they are not planning to increase the cash rate until early 2023. So what are the factors that have caused lenders to increase fixed rates when the variable rates offered have not changed?

The main cause of fixed rates increasing is inflation, not locally but from overseas. Banks and other lenders source their money from a number of different areas, with a large proportion from overseas banks. In the US, for example, inflationary pressures that are the worst in 40 years due to the pandemic will see the Federal Reserve increase rates for the first time since 2018 from April 1st. As the cost of money from these sources has increased, the extra costs are being reflected in the rates offered by lenders here.

While fixed rates are increasing the variable rates offered by some lenders have continued to fall, as the RBA’s cash rate has not changed as yet. Currently you are able to obtain variable rates lower than 2% with a number of lenders. However inflation is also an issue for us locally, so there is an expectation that the RBA will need to increase rates sooner than the stated 2023 timeline. This is of particular concern for anyone with a variable rate Home Loan, as budgets may already be stretched with the increased living costs impacting households.

If you weren’t lucky enough to have your rate fixed earlier in the cycle and currently have a variable loan, now would be the perfect time to review your position with a Mortgage Broker, who can recommend a loan structure that would be the most suitable for your particular financial circumstances.

At SHL Finance we are helping our clients navigate their way through the changing Home Loan market to ensure they are in the most suitable products that meet their needs. We would love the opportunity to help you. Please call Reece Droscher on 0478 021 757 or email reece@shlfinance.com.au.

Advice given in this article is general in nature and is not intended to influence decisions about investing or financial products. You should always seek your own professional advice that takes into account your personal circumstances before making any financial decisions.

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