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Sign interest rates are about to go up

Lucy Dean
·3-min read
Paper currency. Australian money.
Image: Getty.

Australian lenders are beginning to increase their interest rates for four and five year fixed rates, with warnings this trend indicates broader increases across variable rates aren’t far away.

The Commonwealth Bank increased its four year fixed rate by 20 basis points in March, taking it to 2.19 per cent and making it the first major bank to increase rates in recent months.

However, according to the RateCity.com.au database, another 10 lenders have also increased their four year fixed rates.

Bendigo Bank, Bank of Queensland and Aussie Home Loans are among the lenders to have hiked rates.

Conversely, only two lenders cut their four year fixed rates. At the same time, most one to three year fixed rates have been going down.

“In the last month the majority of four year fixed rates changes were in the opposite direction as some banks start to factor in a likely rise to the cash rate in 2024 and the end of the RBA’s term funding facility on 30 June this year,” Rate.City.com.au research director Sally Tindall said.

“The big question is whether Westpac will hike its four-year rate. Australia’s second largest bank currently has the lowest four-year fixed rate in the market. Hiking this rate could lose the bank its competitive edge in this category.”

For borrowers, it means it’s time to stress test their loan repayments and their ability to meet them, Mozo spokesperson Tom Godfrey added.

“It could pay to pause before locking in a large loan and stress test your capacity to meet your repayments when interest rates eventually start rising,” he said.

“With a number of lenders already starting to increase their fixed rates, it’s only a matter of time before variable rates also start to climb.”

Mozo analysis found mortgage repayments will jump from $1,568 to $1,792 a month for borrowers on the average big four bank rate once their five year fixed period ends.

He said that while fixing your interest rate can deliver peace of mind, it’s time to begin preparing for higher repayments.

“It’s still a good idea to make extra repayments on your home loan, even if you fix it. Not all fixed home loans offer the option for extra repayments, but some do. This is a great way to pay off your loan quicker or even get ahead in repayments,” he said.

Borrowers prepare for higher rates

One-in-five borrowers refinanced their home loans last year and 62 per cent took the chance to lock in ultra-low fixed rates.

Most (39 per cent) chose to fix because it was the lowest rate, while 31 per cent said they liked the ability to predict their loans.

“When short term fixed rates and variable rates eventually start to increase, knowing you have funds in the bank to cover your additional repayments is the best way to give yourself peace of mind,” Godfrey said.

Where are the lowest interest rates? 

These are the lowest rates on the RateCity.com.au database: 

Rates are for owner occupiers paying principal and interest. Some LVR requirements apply. Greater Bank (NSW, QLD, ACT only), RACQ (QLD only).
Rates are for owner occupiers paying principal and interest. Some LVR requirements apply. Greater Bank (NSW, QLD, ACT only), RACQ (QLD only).

The Reserve Bank of Australia is due to deliver its interest rate decision for April on Tuesday 6 April.

Image: Yahoo Finance
Image: Yahoo Finance