Rate rise on the horizon, speed up by US situation
Increased home loan rates may come sooner rather than later because of the US debt crisis in 2013.
In October 2013, there was an indication that the U.S. financial situation may have lead to an increase in home loan rates. This means that those who are borrowing would be paying an additional $755 million monthly if the rate for a home loan was to increase by 0.25%.
Australia is influenced by changes in the US
Researchers at finder.com.au have identified that whatever the U.S.'s move is likely to be, raising their debt ceiling will affect interest rates in Australia.
It doesn't take much upward movement in interest rates to have a profound effect on the Australian residential home loan market, which is currently valued at $1.47 trillion. A small increase of just 0.25 percent could lead to an increase in $233 million in the total value of all home loans.
With the variable interest rate being lower than normal in the last half of 2013, any rise would lead to an increase in costs to borrowers' monthly payments, amounting to $755 million.
finder.com.au’s head of PR, Michelle Hutchison, reiterated that if the U.S. increases its debt ceiling, it may well have a great impact on funding costs in the home loan market throughout Australia. This is because loan providers access about 25 percent of their cash from offshore and any additional costs that might occur are just passed on to the borrower.
Borrowers should always be prepared for changes
Borrowers tend to be the losers when interest rate increase and should always keep updated with finder.com.au’s RBA expert panel. In October 2013, finder.com.au’s variable home loan rates were averaging 5.63 percent, which is far less than the average in the previous 10 years, which is 7 percent.
Financial hardship is inevitable if astute borrowers who do not prepare themselves. The first thing that a potential borrower should do is make comparisons between different home loan providers. In October 2013, variable rates ranged from 4.49 percent to 7.05 percent. This seems like a small difference, but a 2.56 percent difference could amount to a saving of approximately $488 monthly for a $300,000 home loan.
When you are in the planning stages for purchasing a home with a home loan, you should ensure you have additional cash available to pay for any rise in interest rates. You should allow for a 2 percent rise so on a $300,000 loan that could mean an additional payment of $400 a month.
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Fixed rates are a good choice for 2013
The year 2013 was a great time now to consider the fixed rate option due to record low rates during that period. This gives you some guarantee on your monthly outgoings for the period of the fixed rate, which can be between 1 and 5 years depending on the loan provider.