What do rising fixed interest rates mean for first home buyers?

Posted: 6 April 2022 10:27 am
Copy of AUINS - One for experts with tips

Would-be buyers need to compare rates widely, and should factor rate rises in when figuring out how much they can afford to borrow.

Last week, multiple lenders suddenly hiked up their fixed rate loans for new borrowers. In some cases, lenders lifted rates by as much as 75 basis points.

A 2.24% rate, for example, jumped to 2.99%. That's a potentially expensive difference. If you borrowed $500,000 over 30 years, your repayments look quite different:

  • Monthly repayments at 2.24% = $1,908
  • Monthly repayments at 2.99% = $2,105

That's a difference of $197 a month or $2,364 a year.

I want to buy a home soon, what do I do?

If you're looking to enter the market soon, it's important to know that rates are going to rise soon for almost every borrower.

There's no need to panic, but it pays to be prepared.

  1. Shop around for a better deal. Rates are already rising, but many lenders have not yet made a move. So it's possible to get a much lower rate, especially on a fixed rate loan. You just have to compare rates across the market.
  2. Factor in future rate rises. If 2.00% is a good rate right now, add another 2% to it. Then use a repayment calculator to see how much your repayments will increase with a higher rate. This is a good way to get prepared for when your rate does rise. You'll know how much more you could be paying.
  3. Understand the difference between fixed and variable rate loans. You could still fix to a very competitive rate right now and not worry about rising rates for a couple of years. But fixing is not just about locking in a good deal. For some borrowers, variable gives you more flexibility and more options. So it's vital to know the difference between fixed and variable rates before you get a loan.

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