Record Low Rate


The Only Way Is Up ?

Everyone knows markets are cyclical. The last time the variable rate was this low; look what happened next, interest rates began rising for the next 20 years!

Record low rates

Source: Reserve Bank of Australia F05

 

Record low rate

You may be waiting for something that just won’t happen. A cursory glance at the history of Australian interest rates, will tell you that the last .25% rate cut was the first change of any kind since Aug 2013. Since the rate drop announced in February, the RBA have met again twice, and on both occasions the rate has remained steady. The variable rate, currently at an all time low, is just as likely to go up as go down in the future. Not since the Moon landing have rates been this low.

Ok, so we can’t predict in advance which way interest rates will head and even Glenn Stevens, the RBA chairman said “Further easing of policy may be appropriate over the period ahead, in order to foster sustainable growth in demand and inflation consistent with the target.” So he is still leaving the door open for another rate cut if required.

Some Strategies

One option is to have “half each way” a bit like a bet, you split your home loan into two accounts, one account remains variable and the other becomes a fixed rate loan, that way you still maintain flexibility with the variable portion such as, the ability to redraw and have an interest offset account.

Some lenders will allow you to have unlimited splits within your loan account. Say for example you had 4 splits to your loan account, each at the current variable interest rate, as each rate announcement is made you are then prepared to fix each split loan portion. Whether the interest rates move up or down, you progressively switch each sub account to a fixed rate.

Considering a fixed rate loan ? Want to lock in at these record low rates ?

We have over 20 lenders with our lowest fixed rates ranging from 3.78% for a 1 year fixed rate loan to 4.34% for a 5 year fixed rate loan.

Matthew McDermott is principal broker at Australian Home Loan Brokers