Long term fixed rates set to rise: time to lock up your home loan?

Shock waves from increased insecurity in the global economy will hit Australian shores soon enough and mean higher interest rates on long term fixed home loans, according to Mozo Data Manager Peter Marshall.

Uncertainty in the global economy, at least in part due to Donald Trump’s recently announced plan to impose steep tariffs on steel and aluminium imports, has led to a swell in the price of US bonds. As rates in the US rise, it can cause rates in other countries such as Australia to follow, as the cost for banks to secure overseas funding increases.

“Long term bonds in the US are going up quickly at the moment and that will eventually impact Australian interest rates as well,” said Marshall.

According to Marshall, as the effects of changes in the US economy filter through to Australia, 3 - 5 year fixed rates on home loans are likely to rise, as lenders price in future rate hikes. Which means those considering a fixed rate home loan may want to act sooner, rather than later.

“If you’re looking at locking in a fixed rate for 3, 4 or 5 years, I’d say now is actually a really good time to do it, before all these changes start really taking an effect on interest rates,” Marshall said.

RELATED: New study reveals: 1 in 3 households would struggle to meet mortgage repayments if rates rose this year

On the other hand, borrowers looking for variable rates and 1 and 2 year fixed rates needn’t be in such a hurry, as these rates are more likely to stay low for longer.

“With variable rates, there’s more flexibility to adjust them whenever it suits the lender, and having a low rate on short fixed terms is a relatively low cost way for lenders to draw customers in with an enticing deal,” Marshall said.

RELATED: CommBank drops fixed rate home loans with investors snagging the biggest discount

But for those looking for a long term fixed rate, the window for locking in a great deal may be narrowing - Marshall said he expects to start seeing longer term fixed rates on the rise very soon, and that within the next two years, interest rates below 4.00% could become a thing of the past.

“Lenders are starting to raise rates, the Reserve Bank has already signalled that it wants to move the cash rate back toward a “neutral” 3.50% - the days of rock bottom interest rates on lending are numbered,” he said.

That’s not unexpected - rates are currently at the lowest they’ve ever been. In January 1990, the average home loan rate was a massive 17.00%, and as recently as 2017, it was as high as 5.10%. Today, it’s just 4.36%*.

“We’re unlikely to get back to interest rates above 10.00%, but borrowers should be bracing for higher rates and repayment costs coming their way,” Marshall said.

If you’re keen to lock in a fixed rate for the next few years, take our home loan comparison tool for a spin, or check out some of the rate leaders from our database below.**

Best fixed rate home loans 3 years

  • SCU My Life Home Loan***- 3.69% (comparison rate: 4.00%)
  • Move Lockit 3Y Special Offer- 3.69% (comparison rate: 3.96%)    
  • Greater Bank Discount Ultimate Home Loan - 3.74% (comparison rate: 4.45%)  

Best fixed rate home loans 4 years

Best fixed rate home loans 5 years

*Average rate calculated for a variable rate, owner-occupier loan with principal and interest repayments and an LVR of 80%.
**All rates are correct at the time of writing, but subject to change.
***No longer exists (12/17/2018)