News
Rates to rise but RBA may not lead the way
The Reserve Bank of Australia (RBA) has indicated that further cuts in the official cash rate are likely to be off the agenda for the rest of the year as the domestic economy has performed much better than expected during the global economic downturn. CommSec expects the Reserve Bank to raise interest rates by 25 basis points in March of 2010, and believes that the central bank is likely to take the cash rate to around 4-4.25 percent by the end of 2010.
This however does not leave mortgage holders off the hook as the major banks are predicted to start increasing their mortgage rates ahead of any move by the central bank because of escalating funding costs.
Many people are asking the question, should I fix my interest rate? The danger is that borrowers will overreact to that thought and lock in a rate that could ultimately see them fork out more. In any interest rate environment it is important to follow the fixing rules. Firstly, never lock in your whole mortgage; opt for a maximum of half your mortgage. Secondly, think carefully before fixing for more than 3 years. Finally, remember that most fixed loans don’t allow extra repayments, which blocks your best avenue to turn record-low rates into huge savings.No one can predict what the future is going to do; even the most respected forecasters can get it wrong.
It is important to speak to your financial adviser who can help advise you on your individual situation.
Source: Nicole Pedersen-McKinnon, The Sun-Herald Investor, and Savanth Sebastian, Economist, ComSec.