Last Tuesday the RBA delivered another 25bp hike to 4.1%. The RBA stated this further increase is to provide greater confidence that inflation will return to target within a reasonable timeframe.
Ahead of the meeting, markets had been pricing less than a 40% chance of an increase. It shows how increasingly hard it is to forecast the current interest rate trajectory.
Home owners and investors can only focus on what’s in their control. This leads us to fixed rate maturities and some thoughts from Finance & Mortgage Broking specialist, Matt Todman, on how best to approach this.
Fixed Rate Cliff – Speak to your Existing Bank First
“The ‘fixed rate mortgage cliff’, as it has come to be known, is one of the big challenges for the Australian economy this year. According to the RBA, about $350 billion – or half of all fixed rate mortgages will expire from now until the end of the year.
Fixed loan rates averaged as low as 1.95% in May 2021 for owner-occupiers. These households will be forced to absorb the 350 basis point increase in the cash rate over the past year.
Most home owners are being advised to look at refinancing options as their fixed rate maturity is approaching. However, my thoughts are slightly contrary to this. My advice is to speak to your existing bank first and understand what interest rate they can offer. For the first time ever, the banks are proactive in looking after their existing customers and you should take advantage of this.
Banks are contacting customers 2-3 months before their fixed rate maturity, and giving them time, tools and educational resources to help them prepare. They are offering competitive discounts on interest rates which are better than any discount a new customer would receive. When do you ever recall the banks contacting you proactively, to improve your rate and put you ahead of new customers?!
The competition amongst lenders for home loans is fierce, with banks desperately trying to maintain their market share. For a bank, it is much easier to retain a customer, than win a new customer. The fixed rate cliff presented as an obvious and known threat to the banks retention.
If you do decide to refinance, be prepared for your existing banks retention team to offer some very compelling interest rates. The retention teams have been in overdrive. Hence to save yourself time, you are best to contact your existing bank first.
Whilst it is counterintuitive for me to advise this as a mortgage broker, I strongly believe it is the best approach. If your bank has not been proactive or are not responding to your enquiries, then that is definitely the time to consider refinance options. There is no excuse for lack of service in this competitive market”.
Matt Todman
Matt is a Finance & Mortgage Broking specialist with over 15 years in the banking and accounting industries. He helps home owners, businesses and business owners fund their growth aspirations.
Matt has access to a large panel of lenders and implements a thorough credit process to increase the likelihood of a successful loan application. If you have any lending questions, please contact him at matt@threestorycapital.com.au or 0413 990 888.
