Recent reports indicate that banks may oppose the rate freeze implemented by the Reserve Bank of Australia (RBA). Due to losses from the COVID-19 epidemic, higher rates could be expected in the near future. Are borrowers to be worried?
The RBA maintained its unchanged monetary policy in September. The cash rate was kept at 0.25 percent. The central bank did not increase the cash rate target until inflation or unemployment improved, however recent reports indicate that banks may be able to make out of-cycle increases as soon next year’s first quarter.
Raj Ladher, a specialist on home loans at Your Mortgage Broker, said that rising rates for commercial and home loans are complicated by the current economic environment.
Due to the pandemic, banks will need to be more cautious about what levers they pull. This is a problem that banks are well-known for.
Sarah Megginson, Managing Editor of Your Mortgage and Your Investment Property, and Australian Broker, shared these sentiments. She said that banks are aware that many borrowers face uncertain and precarious financial circumstances.
She said that they would think carefully about any increase before initiating it.
However, Megginson believes there is no need for borrowers to be worried if banks suddenly increase rates, as mortgage costs have become more affordable than they have ever been.
Many people pay less than 3 percent on their home loans. This means that even banks raising their interest rates, there is not likely to be a significant financial impact for borrowers. An increase of 0.25% on $500,000 would lead to a $24 increase per week in your mortgage interest payments.
Megginson believes that borrowers with better financial conditions would be able repay their mortgage sooner than if they were paying a higher rate.
She stated, “You’ll make more progress on your loan and be able to pay off your mortgage faster this way.” Then, even if interest rates go up, you will know you can afford it.
Megginson said that there is always a fixed rate option available for borrowers who want certainty and comfort.
Fixed rates are a good option if you want to be certain of your repayments for at least one year. She said that deals as low and convenient as 2.09% are now readily available.
Ladher stated that rate hikes are possible and that borrowers need to be aware of key factors that can have an effect on their mortgages. This includes the announcement of cash rates. Ladher suggested that borrowers also look into government support programs.
He suggested that anyone who is interested in buying a home should examine their finances to see if they are able to afford one. A mortgage professional will help you assess your borrowing capability and organize your repayments based on your income, expenses, and liabilities.