Will Your Home Loan Interest Rate Go Up Soon?
The Reserve Bank governor might tell us he won’t raise interest rates until 2024, but what about the banks? According to the latest interest rate news, the CFA has increased its three- and four-year fixed-term owner-occupier rates by five basis points and ten basis points for investor-only loans. The three-year fixed interest rate is 2.19% and the four-year interest rate is 2.24%.
But what is there in view of these statements by RBA chief Dr. Phil Lowe about the cash rate dropping below 0.1% by 2024 on these rate hikes?
The problem is, the economy is recovering strongly and the country’s banks now have only $ 90 billion in cheap loans, which the RBA has provided through the Term Funding Facility (TFF) to help mitigate the blow of the coronavirus . A strong economy and rising house prices mean great demand for credit, and without this cheap credit money, experts warn that fixed interest rates will rise.
The cheap money for banks came from the coronavirus crisis and meant that the RBA provided a so-called Term Funding Facility (TFF). Last March, the banks had to borrow $ 90 billion and the price was valued at the cash interest rate. At that time it was 0.25%, today it is 0.1%. And in September the RBA increased the available money to $ 200 billion.
SMH “Evans and Partners analyst Matthew Wilson said the RBA’s maturity facility helped more than double the proportion of new fixed-rate loans to approximately 35 percent of all new mortgages.”
Over a third of borrowers now have fixed rates, so borrowers have two problems to consider. First, when you are about to borrow, fixed rate home loans are more expensive so you can shop better.
Rate City’s website shows that the lowest three-year offer on the market at Credit Union SA is 1.79%. It is also noted that “six lenders increased the three-year fixed rates while 20 institutions increased the four-year loan products”. (news.com.au)
Second, when those with fixed rates see their loans expire, they will move on to a much higher variable or fixed rate alternative.
While hating the banks is a national hobby, they actually have good reason to raise fixed interest rates. This is because when the cheap money disappears from the TFF, they will have to go to the wholesale market for more expensive funds. That said, they’ll likely come up with the increases sooner than necessary, but who thought banks were a charity?
On the positive side, this could encourage banks to raise interest rates for time deposit savers, which would be a step towards normal banking and economic conditions.
Currently, the analysis of developments in the banking system and the credit market is based on the assumption that the RBA will hold the current rate until 2024. Therefore, there would be no floating rate home loan until 2024.
I think it is possible, but if our economy continues to grow rapidly and demand for real estate continues to drive prices up, APRA will first get banks to play hard on loans to take the heat off the market.
However, if the economy is growing so fast that inflation is rising much faster than expected (and this is a guess for all economists, the Treasurer and Dr. Phil of the RBA) then the prime rate must go up, and that will send the variable interest rate up .
This will be the first sowing of the seeds of the next recession and stock market crash, but I won’t worry about that for a few years at worst and four years at best.
These variable home loan rate hikes won’t happen overnight, but they will.
Best advice if you are worried about the interest rates? Check out this room!
And now if you want to know about the cheapest variable home loans, check out the following:
- Variable: Homestars Gold Home Loans at 1.79% for a comparison rate of 1.84%.
- Fixed 3-year rate: UBank with an advertised rate of 1.85%, but a comparative rate of 2.24%.