In our March 2015 update on interest rates we told our readers to stick with variable rates over the course of the next 3-6 months. If you stuck to my advice you would have been rewarded with a further 0.25% cut last May. However a lot has changed since then and what we have seen is APRA wanting to take out the heat particularly in the hot Sydney and Melbourne property markets. Now you are seeing rate rises on investment lending, interest only loans and in some commercial lending products such as property development finance.
However don’t get blindsided by the banks raising rates given that on the other side of the fence we have a domestic and global economy slowing meaning that the Government will encourage us to spend, and to do this interest rates must remain low. Where it will hurt is in the profitability of the 4 major Australian banks and whilst I understand they have to adhere to additional capital requirements, they are like any other business and have to make money for their investors. One way of doing this is by raising interest rates and lifting margins on their existing loan book whilst at the same time tinkering with internal credit policy to adhere to the government regulator. Don’t forget the cash rate is still the lowest in 50+ years at 2.00%, and there is still plenty of opportunity to either negotiate with your current bank, or refinance with another lender to get a lower rate. Best you get the saving then putting it in the banks pockets!
My prediction is to again stay on variable rates for the next 3-6 months but be willing to negotiate your rate or have your finance broker do this for you. However fixed rates are reducing and if you are not thinking about selling in the next 3-5 years I would suggest you place at least half of your debt on a fixed rate loan to give you some risk insurance.