Interest rates

At Select Mortgage Services we are not licensed to give financial or legal advice but we are allowed to give our opinion based on what we have read in the media.

The truth is nobody, not even the Reserve Bank, can say with certainty what will happen to interest rates in the next three or six months and certainly not what they will be by the end of the year so whatever you might read or hear is simply conjecture based on historical data and forward projections.

The reason for this relative uncertainty is of course the speed at which influencing factors might change, not only in Australia, but perhaps in other parts of the world that have a bearing on our economy.

With that sort of disclaimer out of the way we would generally agree that the next rate movement will probably by up by 25 basis points and probably happen in the next two or three months and if we were to really stick our neck out perhaps a further 25 basis points by the end of the year. It’s just guesswork but that’s our view.

If you are a mortgage holder there are of course strategies you can put in place to cushion the effect of interest rate rises and the most popular idea is to split your loan in to two parts, either half and half or maybe one third two thirds. One part is on a variable rate and the other fixed for say three years. In this manner if interest rates go up only the variable rate loan is impacted, not you total loan.

The other part of this strategy is to make any additional payments, over and above your normal payments, to the variable rate loan. It makes sense to reduce the mortgage on the loan most susceptible to rate increases. Pay the minimum amount required on the fixed rate and hammer away on the variable rate.

If you are thinking of purchasing, refinancing or considering a variation to your loan give us a call. We’re here to help.

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