In this Blog we are going back to the basics of Housing needs, interest rate and how different the rise of same can affect your borrowing needs and payments.
Interest Rates and its Effect on Housing
In recent times, Australia has experienced some of its lowest interest rates to date. As the same for all economic factors, speculators have suggested that there is potential for a rapid increase in the interest rate towards the end of this year.
Fixed-Rate vs Variable-Rate Home Loan
A fixed-rate home loan has a consistent interest rate that does not change over the loan period. This not only provides payment security adequate budget forecasting, but also mean that if the interest rates spike during your fixed-rate home loan period, your home loan will be unaffected.
Contrastingly, a variable-rate home loan changes over time. This suggests that your home loan rate will fluctuate in accordance with the rates set by the lender and your repayment costs will change as a result.
Current Economic Conditions
During the past few years, a 2 or 4-year fixed rate home loan offered at 2% interest were fairly common. However, nowadays it would be considered very lucky to find a 2-year fixed rate home loan offering 3.5% and subsequently, a 4-year fixed rate under 4%. This means that if you decide on a fixed rate, you are potentially paying a premium amount for the certainty of budget forecasting.
Moreover, many experts suggest that in the long run, a variable-rate home loan would potentially outperform a fixed-home loan as a result of the fluctuating economy. This means you would hypothetically pay more interest over time with a fixed loan rather than a variable loan. However, it should be noted that the market is an unpredictable indicator that can fluctuate, negatively impacting the interest rate and causing you to pay more.
Regardless, whether you are looking to purchase your first home or buying a rental property, the home loan is an important aspect to consider. You should keep tab on websites of RBA - https://www.rba.gov.au and your own bank where you itend to take loan from.
Thanks for reading. As always if you or anyone you know is thinking of getting started on their property journey or need any advice, give us a ring on 6989 4656. We'd love to show you why we are better than others in the field.