Mortgage Fixed Or Variable Rate?
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What are the current trends in mortgage rates in Australia?
It's The Real Estate Podcast, brought to you by Ray White, the largest real estate and property group in Australasia. And welcome to another episode of The Real Estate Podcast, available on iHeartRadio, also on Google and Apple Podcasts, or wherever you get your podcasts from. Okay, let's have a look at the main centre forecast with propertybuyer.com.au for Wednesday, the 23rd of March. And in Sydney, expecting showers today with a high of 24 degrees. A little cooler in Melbourne, expecting light rain with just 19 degrees. Brisbane, expecting a fine day with 31. And in Perth today, expecting a high of 29 degrees and a mainly fine day. And all eyes are going to be on mortgages in the next 12 months across Australia as the cash rate looks to increase.
And I've said it before, we have a generation of home mortgage borrowers who have only ever known mortgage rates to be going down. So what happens to most of these borrowers is going to be unprecedented, virgin territory, and let's face it, potentially a volatile situation if they've borrowed heavily to get into the property market, which really is most of them.
How do fixed rates compare to variable rates in today's market?
And to lean into the conversation, I'm joined this morning by Steve Mickenbecker from Canstar. Good morning, Steve. Good to have you on the Real Estate Podcast. Good morning, Craig. Great to be here. And to my point about a generation who have borrowed heavily, the fixed rates are moving up, but the variable rates seem to be more stable by comparison. What do you think is likely to happen in that space for, say, the rest of this year? We have seen massive increases in fixed rates. They're up sort of 1.3%, 1.4% from their lowest point. I can see that continuing over the coming year.
What impact do cash rate increases have on variable mortgage rates?
I think it's going to be a gradual rise. The banks are just gradually adjusting and sometimes they're moving twice in a month. So we'll see that continue for quite a while. But then one day, the Reserve Bank is going to push the button on a cash rate increase. And at that point, we'll start seeing a lot of action on the variable rate. So fixed rates continuing for a while, continue to go up. But then sooner or later, probably later part of this year, the Reserve Bank will move and we'll start seeing variable rates go up. And that will be a shock because that will affect existing borrowers as well as new borrowers. Yeah, we'll get to that cash rate in just a moment. Now, banks seem more prepared and more likely to give away margins with variable rates as opposed to fixed rates.
Why are banks more likely to adjust variable rates over fixed rates?
Can you explain to our listeners who might have an existing mortgage or to anyone who is currently thinking about getting a mortgage why that is? Yeah, one of the things that people probably haven't focused on because they've never seen rate increases is that the bank can actually increase your rate whenever they want to if it's a variable rate. Now they get into trouble if they do it outrageously, but they can still do it. They have the right to do it and that's because they're borrowing short, so short-term borrowings to lend to you over 30 years. Now, the bank is very comfortable at this stage in the interest rate cycle with rates as low as they are, but about to go up. They're very comfortable adding to their loans, writing loans on the variable rate in the full knowledge that in six or 12 months time, they'll be increasing your interest rate.
so look it will happen the other problem that people might not be ready for is that when the reserve bank starts moving off a bottom of the bottom rates normally rate increases come in clumps so it's not just going to be 0.15 or 0.25 increase it's more likely to be a two percent increase or a 1.5 percent increase over the next couple of years And that adds a lot to the repayment. And just to give people an idea, to move from an average rate today to one that's 2% higher on a million dollar loan is another $1,100 odd per month. So a very big number to find in the household budget.
What should borrowers consider when choosing between fixed and variable rates?
Yeah, so you actually raise that good point that the fact that the cash rate isn't tied in any way to the variable rate means, of course, that the banks can increase those rates as you're talking about.
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Chapters
7 chapters
1
What are the current trends in mortgage rates in Australia?
0:02–1:19
2
How do fixed rates compare to variable rates in today's market?
1:19–1:57
3
What impact do cash rate increases have on variable mortgage rates?
1:57–2:47
4
Why are banks more likely to adjust variable rates over fixed rates?
2:47–4:15
5
What should borrowers consider when choosing between fixed and variable rates?
4:15–5:17
6
How can refinancing affect monthly mortgage repayments?
5:17–6:20
7
What advice is given for borrowers coming off fixed-term loans?
6:20–9:15
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