Our economy isn't shooting the lights out, so why would the Reserve Bank want to increase rates in the next two years? If anything, it's likely to be steady as she goes, with an outside chance of another rate drop. We attended a Big Four-Bank economics update two weeks ago, which advised the same sentiment. However, despite this advice the banking market are increasing fixed mortgage rates. Why?
One of the Banks most profitable 'products' is fixed rates, and they love to sell the story that they know best and that we should trust them. As a customer if you fix rates you are generally paying a premium to do so. If you ever need to break your fixed rate loan early, most banks charge an unfriendly break fee, sometimes in the thousands of dollars. If you leave your loan on variable rates, this allows you to keep your options open and in a position where you can seek the most competitive rates, anytime you like.
Banks and financiers are currently trying to increase all borrowing rates with various 'out of cycle' rate increases. Why? Because ultimately Banks report to their shareholders and so to achieve continual revenue growth in a market where the general system growth isn't increasing, they need to increase margins from their existing products and customer base. In a constant cycle where Banks feel compelled to announce record profits each year, a false economy has been created and as a customer you may be paying for it.
Whether fixed or variable rates are right for you depends on your life circumstances and financial situation. If you’d like all of the options explained to you, contact us for an appointment on 1300 76 40 30.