Fixed-rate borrowers face rate hike traps
One expert says that many borrowers have higher interest rates than what they signed up for.
Some borrowers have reportedly fallen into a trap when banks raise their fixed rates.
Cara Giovinazzo, founder of Brisbane-based brokerage firm Borro, said there have been a number of complaints recently from borrowers that banks are raising their fixed rates after signing up for a fixed rate offer.
“Some customers get caught by the big banks raising their fixed rates, and I have a customer who made a formal complaint after their interest rate was increased three times before the loan was approved,” said Ms. Giovinazzo.
“He made the decision to go with this bank based on their interest rate, and with his settlement deadline approaching, he now doesn’t have the luxury of switching lenders, which effectively traps him.”
In the final months of 2021, many banks followed the trend of increasing fixed rates in anticipation of a possible rate hike by the Reserve Bank of Australia (RBA).
“We have seen a frenzy of fixed rate hikes by the big banks, with the Commonwealth Bank raising rates four times in just two months, adding more than a whole percentage point to their four-year rate since mid-October,” said Ms. Giovinazzo.
Borrowers planning a fixed rate should be aware of the additional fees associated with the loan, such as:
“However, some banks do not allow their customers to set the interest rate until loan agreements are drawn up,” said Ms. Giovinazzo.
“Since banks take longer to review loans, you may be exposed to interest rate hikes before this feature is available.”
Ms. Giovinazzo suggests that borrowers consider split loans, which would get part of the loan at a fixed rate and the other part at a floating rate.
“This gives them some security about future repayment amounts while also allowing them to enjoy all the flexibility of a variable loan feature,” she said.
Photo by @introspectivedsgn on Unsplash.