For those who haven’t been paying attention to the banking and property industry right now in Australia, you may not have noticed there is a considerable amount of volatility occurring with interest rates.
So, what is going on?
In short, the Reserve Bank of Australia (RBA) have been keeping the official cash rate firmly on hold for a considerable amount of time. This strategy has enabled the RBA to effectively stimulate the Australian economy.
However, the retail banks themselves have begun increasing the interest rates out of sync with the RBA, due a variety of factors, such as:
- Interest rates increasing abroad. Interest rates are a global phenomenon and if the cost of money goes up globally, Australian banks are not immune.
- Increased pressure from regulatory government bodies on lenders to ensure reckless speculation is avoided in residential property markets.
It is important to note; some sectors of the market are being targeted more aggressively than others.
Let me explain.
Not all types of loans are being treated equally.
- Owner Occupied Home Loans. Borrowers with home loans on their owner-occupied premises are facing slight increases to their interest rate.
- Investment Home Loans. Borrowers with mortgage loans on their investment properties are facing aggressive increases to their interest rate.
- Principal and Interest Repayments. Borrowers who make principal and interest repayments on their home loan are facing slight increases to their interest rate.
- Interest Only Repayments. Borrowers who make interest only repayments on their home loan are facing aggressive increases to their interest rate.
In short, investors who make interest only repayments are feeling the full force of these interest rate increases, whilst home owners making principal and interest repayments are feeling only small increases in comparison.
What can I do?
Well, I wouldn’t be much of a finance strategist if I hadn’t figured out a couple of solutions to the interest rate dilemma!
- For homeowners that make principal and interest repayments, there are still some competitive deals out there. These are the sort of deals lenders are hungry for, so if your bank is not offering you the red-carpet treatment, it is time to get rid of them!
- For homeowners that currently make interest only repayments, this is an excellent opportunity to refinance to principal and interest repayments and start paying off your home loan whilst also locking in a better deal at the same time!
- For investors, there are still some lenders offering competitive fixed rates that do not differ between investors and homeowners, meaning you could still lock in a competitive fixed rate if you refinanced!
- For the few who are both homeowners and investors, there a select number of lenders that will give you the competitive owner-occupied interest rates on all your home loans, including investment home loans, if you refinance your home loan and investment home loan to them!
What will you do?
You have two options.
- You can complain about how unfair the banks are – and do nothing.
- You can be proactive and beat the banks at their own game!
This window of opportunity will not last.