Question: Interest rates are the lowest they’ve ever been. If I’m entering the market, what is this likely to mean for my mortgage in the medium to long term?
Heritage Bank branch manager Jamie Mason says: With interest rates at historic lows, it’s the perfect time for people to consider entering the mortgage market.
Repayments have never been more affordable, with banks offering home loan rates around the 4% mark, depending on the exact loan type. That’s a far cry from the bad old days of the late 1980s, when interest rates hit around 17%.
The reality is that with the RBA cash rate sitting at just 1.5%, home loan interest rates simply can’t get much lower. That means it could be a good time to think about fixing your home loan rate, rather than opting for a variable rate. You will lock in a very attractive rate, and this also provides certainly about your repayments, which helps you plan your household budget better.
The good news for borrowers is that because interest rates are so low now, the medium term prospects are also pretty good. Based on feedback from markets and from key financial commentators, it’s expected that rates will stay under 7% for the next 10 years.
That’s a great window of opportunity to take a hefty chunk out of your mortgage.
However there is one major trap that borrowers need to think about with such low rates, and that’s becoming over-committed. Don’t be fooled into thinking that rates will always be this low and commit to repayments that are right at the top end of what you can afford Rates may stay low in the short term, and there is already talk that the RBA may shave a bit more off the cash rate later in the year.
But history tells us that eventually rates will go up again. When that happens, repayments will also increase, so borrowers need to allow themselves room to move if they have to meet bigger repayments in future.
That can be a particular issue for young couples, who want to start a family in the next 5-10 years.
These couples may be able to easily afford large repayments now, but maybe not so in future when children come along, repayments rise, and the family may have to survive on one income.
Not only is this a good time to enter the market, it’s also a great time for existing borrowers to renegotiate. Because rates have been heading downward steadily in the last couple of years, you could save significant sums if you look to renegotiate a home loan that you took out some time ago, when rates were higher.
It doesn’t hurt to ask, either your current bank, or a competitor!
- Do you have a question for Jamie Mason? Send it to toowoomba@brisbanetimes.com.au. Be sure to let us know that your question is specifically for Jamie.
