To fix or not to fix? That is the question.
And if you look at fixing your home loan rate, is it worth paying a rate lock fee given the steady stream of rate hikes by the banks in recent weeks?
In the past month, 16 lenders have hiked their fixed rates twice, including CBA, NAB and ANZ, while Westpac is the first bank to hike fixed rates three times in the same period.
Reserve Bank Governor Philip Lowe has called for calm and maintains the RBA is unlikely to lift rates before 2023 or 2024.
But the banks have a history of going rogue so what should you do with your mortgage right now? Mortgage Broker Prahran
The latest figures from ABS lending indicators show 45 per cent of people are fixing their home loans.
The cash rate is 0.1 per cent. It can’t go any lower.
RateCity research director Sally Tindall said before rushing to fix a loan, consider whether you need the flexibility of a variable rate loan that allows extra repayments and offset accounts.
“Just over six months ago, there were more than 180 fixed rate loans starting with a one.”
“That number has halved today however there are still great deals out there if you know where to look,” Ms Tindall told 9News.
Despite the RBA’s indications, “banks do not dance to the beat of the RBA drum”, Ms Tindall said, and fixed rates would go higher in coming months as the cost of wholesale funding increases.
One option is to consider a split loan where half your loan is fixed and the other half variable.
“This is a great way to have a foot in both camps,” Ms Tindall said.
There are still competitive fixed rates around and it may be worth considering a rate lock fee to guarantee that rate while the lender processes your application.
With so many people refinancing and new APRA regulations in place, banks are taking weeks, sometimes months to settle loans and those delays can cost big money.
IT manager Mike Buechel applied to refinance his owner-occupier and investment properties with ANZ on September 19, when he was offered two-year fixed rates of 1.94 per cent and 2.29 per cent respectively.
But while waiting for the loans to be approved and settled, ANZ has hiked its fixed rates twice, and now he is on interest rates of 2.39 per cent and 2.69 per cent.
At the time he was offered a rate lock fee – a fee which guarantees the then rate – of $750 per loan but rates had only gone down in recent years and he didn’t think it was necessary.
Now the loan still hasn’t settled and he’ll be thousands of dollars worse off.
“It went up twice within three weeks after I got my loan approval,” the 58-year-old father of three told 9News.
He declined paying a rate lock fee.
“I thought it would be a total waste, I thought it was a bad investment. All indications were that rates weren’t going to go up any time soon, at least 12 to 24 months before we’d see any rate increase at all.
I was extremely frustrated,” Mr Buechel said.
“20-20 hindsight, I probably should have taken the fees to lock in the rate but I feel like it’s a bit of extortion. They’re already getting $25,000 a year out of me in interest.”
“Why are you offering me a $3000 cashback and you’re going to take 50 per cent of that off of me to just lock in the rate. It’s wrong. It didn’t sit well with me.”
Mr Buechel said the eight-week delay has cost him an additional $8000 in interest.
“COVID has been hard on all of us out here; everyone’s trying to tighten their belt. I’m getting close to retirement so my focus is on what can I put into my retirement.
“I was going to use that money to help me with my retirement in the next few years and they’ve taken that away from me,” he said.
Rate lock fees can run into thousands of dollars, but they differ between lenders and in some cases on the size of the loan.
The “lock” typically lasts for 90 days.
Read More;- Refinance Home Loan Melbourne
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