Is 2017 the year to fix your mortgage interest rate?

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Jan 19, 2017

Is 2017 the year to fix your mortgage interest rate?

If variable interest rates begin rising in the middle of 2017, as predicted by Zac Peteh, director of mortgage broker Mint Equity, it could be time to consider fixing your rate.

Zac Peteh, director of mortgage broker Mint Equity, says now is the time to consider fixing mortgage interest rates.

2017 could be the year to fix interest rates, as the period of record low rates draws to a close.

Banks have already begun increasing fixed rates, and rates for investors are also on the rise.

Zac Peteh, director of mortgage broker Mint Equity, said he believes variable interest rates will begin to rise in the middle of 2017 as the Reserve Bank raises the cash rate when inflation recovers from historic lows.

Peteh told SCHWARTZWILLIAMS he expects the cash rate to rise as inflation ticks higher.

"I think we'll see (cash) rates increase when inflation gets closer to 2%," he said.

Inflation is forecast to decrease in January 2017 to 1.18% from 1.3% in October 2016, but is forecast to increase to 1.34% in April and 1.52% in July.

"The banks will have no problem passing on the increases," he predicted.

With variable rates forecast to rise mid year, now is the time to consider fixing interest rates, said Peteh.

"Given we are seeing rate increases happening already, now is the time to consider fixing before banks increase any further," he said.

"Not all lenders will change rates now, so the window is open, but options for preferred lenders might reduce and second-tier lenders might become the preferred options," he said.

Peteh suggests fixing for shorter periods, say two or three years rather than five years, to allow for flexibility should economic conditions or your circumstances change. Breaking a fixed rate home loan can have considerable costs.

Peteh also anticipates it will be harder to get finance for property, and that banks are reclassifying who they define as high and low risk.

Banks have been facing higher funding costs since early 2016, leading the banks to pass on the higher costs to customers in the form of higher borrowing rates, mainly for investors up until now.

Peteh says the higher borrowing costs are the result of several complex and interconnected factors.

"The USA elections, ‘Trump-economics’, China, bonds, derivatives, trade and export, GDP, inflation, employment and consumer sentiment (to name a few) all have an impact,” he said.