Official interest rate stays on hold but should you consider a move?
It was the 10th consecutive RBA board meeting that the cash rate has remained steady at a record low 1.5 per cent, and economists had been unanimous in predicting no move today.
CoreLogic head of research Tim Lawless said the decision “came as no surprise” amid falling unemployment, the housing market showing signs of slowing and inflation running at 1.9 per cent — below the RBA’s target range of 2-3 per cent.
“If wages growth and inflation remain subdued we can expect the cash rate to remain on hold over the short term,” he said.
RateCity.com.au CEO Paul Marshall said the RBA was likely to continue its “wait and see” approach as it monitored the effects of tougher new measures for investors and interest-only borrowers by financial regulator APRA.
“We believe the Reserve Bank still needs more time to monitor the impact of APRA’s changes to lending requirements before making a decision to move on rates,” he said.
“APRA so far has done some of the Reserve’s heavy lifting. Over the last few months Australia’s big four banks have increased rates for investors paying interest-only.
In the past month major banks have announced small rate cuts to variable rate mortgages for owner occupiers but more big increases in interest-only and investment loan rates.
The rate volatility and warnings from some of looming rate rises have prompted many people to consider a fixed-rate mortgage. Home loan specialists say the decision to fix or not will depend on your personal circumstances, but they have offered some general guidelines.
FIRST HOME BUYERS, SINGLES AND COUPLES WITHOUT CHILDREN
A low interest rate is likely to be more important than fixing. Some special low-rate offers may be fixed for a period, offering certainty to buyers on a tight budget. But beware of restrictions and break fees.
SINGLE INCOME FAMILY WITH YOUNG CHILDREN
Having one breadwinner in a family means guaranteed fixed mortgage repayments may be welcome, but balance this with the flexibility of variable rates. Part-fixing your mortgage — half variable, half fixed — may be a good option.
DUAL-INCOME FAMILY WITH CHILDREN AT SCHOOL
Experienced borrowers who have ridden the ups and downs of interest rate cycles are more likely than other demographics to be on variable rates. Having two incomes helps cover potential rate rises.
Trading up to a larger, more expensive home increases the size of the debt — and the risk if anything goes wrong — so consider at least part-fixing some of the mortgage.
If the children have flown and downsizing is on the cards, a fixed-rate mortgage makes little sense because you may have to pay big break costs if you terminate the loan before the fixed period ends.
The ideal situation is to retire without a mortgage, so anyone with less than $100,000 owing should steer clear of fixed rates and focus on paying down the debt. If you do retire with a home loan, the certainty of fixing or part-fixing may provide some peace of mind.