[Video] How the Interest Rate Increase Will Affect Your Repayments – Nov 2023
The video below walks you through how the interest rate increase will affect your repayments by our head Mortgage Broker – Elizabeth Zaki.
Home Loan Market Update – Nov 2023
The RBA has raised its official cash rate by another 0.25% to a 12 year high of 4.35%. In terms of the home loan market; all lenders are expected to pass the 0.25% rate increase in full.
When Will My Repayment Go Up?
In the next few days you will receive a letter advising you of the rate increase.
- The new interest rate will apply from the rate effective date, i.e. that night, the interest is calculated based on the new rate. Interest is calculated daily based on (Loan balance – Offset balance, if you have an offset account ) x rate/365
- If you are paying Principal and Interest, your minimum required repayment amount won’t increase straight away. The bank will give you a notification when the repayment will go up (sometimes there is a delay in the notification). It’s recommendable to call the bank to increase your repayment so that you’re up to date.
- If you are paying Interest Only, the monthly interest will be increased accordingly.
To Fix Or Not To Fix?
This brings us to the topic of fixing part or all of our home loan. Here, we will try to answer the following questions:
Why Would I Fix My Home Loan?
There are many advantages to getting a fixed rate home loan:
- If you lock in your interest rate (1, 2, 3, 4, or 5 years) you know exactly what your repayments will be each month. If you’re starting out on your home loan journey, locking in a competitive long-term interest rate could be a smart move
- Set weekly, fortnightly or monthly repayments. You’ll have a clear idea of your weekly, fortnightly, or monthly payments for the fixed term of your loan, which makes budgeting and managing your money easier
- Protect yourself against interest rate rises. By locking in a fixed interest rate, you can protect yourself from rate rises that may occur in the future. At least for the period of the fixed-rate term
- Knowing your home loan repayments with certainty allows you to plan for the future and set financial goals with confidence
For more information, you can read our article which outlines when you should fix your home loan.
Why Wouldn’t I Fix My Home Loan? When is fixing my home loan a bad idea?
A fixed-rate home loan works in a very different way from a variable-rate home loan. By fixing your mortgage, you lose a lot of the flexibility and may face higher exit fees if you make changes to your loan or make extra repayments during the fixed-rate period.
DO NOT fix your home loan if:
- You want to make extra or larger repayments on your home loan
- You plan to sell your property within the fixed term. There may be loan break fees to pay
- You plan to refinance your home loan within the fixed term. Again, there may be loan break fees to pay
- You plan to renovate or build a new home and plan to use the equity in your property within the fixed term
- You don’t like being locked in with a particular lender or loan product
Current Specials
There are a number of special offers currently. Remember if you are looking at the bank’s website, some banks have NOT updated their rates yet and are still quoting the rates BEFORE the current rate rise – they will add the 0.25% increase soon.
Just generally, your interest rate depends on:
- Your loan size – Some lenders offer a lower rate for higher loan size
- Your Loan to Value Ratio (LVR) – Some lenders offer a low rate for lower LVRs. It’s a safer loan for them to make
- Whether you choose Principal and Interest or Interest Only – Principal and Interest home loans come with lower interest rates. Again, lower risk for the lender
- Whether your loan is Investment Loan or Owner-Occupied Loan – Owner Occupied home loans are the cheapest
- Whether your loan has an offset account or not – Some lenders offer a better rate for NON offset loan products
How do you check your Loan to Value Ratio (LVR)?
Contact us and we can do a FREE property valuation. Remember, the lower your LVR, the cheaper the interest rate will be!
