It’s time to factor in interest rate rises

It’s time to factor in interest rate rises

Posted on Friday, November 22 2013 at 11:50 AM

Alex Parsons, chief executive officer of financial comparison website RateCity, says there’s an established trend of fixed interest rate rises, and borrowers must now start allowing for rate increases in all mortgage decisions.

“Borrowers should prepare for the eventuality of
higher interest rates in the future and make sure they could comfortably afford
to service the loan if rates increased to the historical average of around seven
per cent or even higher.”

Parsons’ comments come on the back of RateCity data showing 188 fixed
home loan interest rates have risen between September and mid November this
year, including 88 in a single two-week period.

RateCity says about half of all four and five-year
fixed rate home loans, and more than one third of three-year fixed rate home
loans, have seen rates increase during the past two months.

The website says there’s now an established trend for an increase in longer-term rates.

“Movements in fixed rates are common and
based on a number of variables, but the trend is definitely to longer term
rates drifting up,” Parsons says.

RateCity notes shorter-term fixed rates have remained
largely unchanged, with one-year fixed rates as low as 4.29 per cent.

“We have seen a lot of competition in the
shorter term fixed rates.

“While they are also subject to the same
market forces as longer terms, they’re a lower risk way for institutions to
offer hot rates to attract new customers.”

Parsons says an important factor to consider
when taking a fixed-rate loan is the interest rate to which the facility reverts
once the fixed interest period is over.

“Most fixed rates revert to a variable rate option at the end of the
fixed period, which depending on the rate cycle, could be more than one
percentage point higher and can mean having to fork out thousands of dollars
more per year to service the same loan.”

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