FIXED-RATE MORTGAGES ARE THE TREND
- Written by Melanie Toye, January 10, 2014
It appears the New Year has brought a frenzy of new plans to owning one's own home in Australia.
With interest rates at the lowest ever in the history of Australia, homeowners are locking in fast to fixed-rate mortgages. The influx of fixed rate mortgages has increased in every state, except for NSW.
This comes as the Reserve Bank of Australia (RBA) will meet in February to determine if the cash rate will stay fixed, be lowered or raised. Many predictions are being cast wide by economists. Some declare they would be surprised if the cash rate rises in February. While others believe the RBA will lower the cash rate.
The cash rate is dependent on a variable of influences including, the Nation's current and future economic outlook, statistical growth of unemployment, lowered inflation plus the international economic outlook forms all part of the dynamics of the decision the RBA Board have to make.
The important point for all those with a mortgage, gaining a new mortgage or hosting multiple mortgages, is to always calculate the possible repayments if the interest rate were ever to be 5 or 7%. Although this seems to be a bit far from the horizon, it was not that long ago, where 7.5% cash rate was the going rate.
Low rates are a great time to jump into a mortgage, just so long as the mortgage holder has enough in its reserve put aside for when the time comes, that the RBA pushes the cash rate back up. And with a thirty year loan term, it is bound to happen sometime during that period.
Another great decision by the Reserve Bank of Australia Board that all Australian home owners will be cheering about. On 2 September, the Board decided to leave the cash rate unchanged at 2.5 per cent.
This gives mortgage owners a chance to continue to add additional money into their mortgage without the funds being chewed up by high interest charges.
And because of this, mortgages will be paid out much quicker. In some cases, if a mortgage owner adds an additional $200 a week into their mortgage. They might be able to chop five years, off their total loan amount. Can you imagine not paying a mortgage repayment anymore? Well, if you pay extra in your mortgage while taking advantage of the low interest rates, you could be living without a mortgage much sooner than you except.
The things you could do with that extra money. Maybe even put it towards a holiday home, or investment property, or building your super, or just taking a wonderful holiday somewhere.
Sooner or later, interest rates will climb again. There is no doubt about that. So taking full advantage of the low interest rates now, is in your favour.
Pending on who your mortgage is with, you might be able to put the additional payments into a redraw facility, in case down the track you need to use it for an emergency.
Some mortgage owners put their additional funds into a savings account to earn interest. But say $5,000 in savings a year, you earn $100 in interest and then taxed from the interest you earned. Would it be more for your end pocket if your savings were put against your mortgage?
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- Saving initiatives for first home buyers - February 28, 2014
- ANZ put their cards on the table - February 2, 2014
- Fixed-rate mortgages are the trend - January 10, 2014
- Always be diligent with your research - November 8, 2013
- Lowest interest rates ever yet mortgage stres.. - October 26, 2013
- More mortgages lodged in 2013 - October 19, 2013
- Selling and your mortgage - October 11, 2013
- September records show a rise - October 4, 2013
- Reserve rates hit record low - August 11, 2013