Understanding Your Mortgage in 2017

January 25, 2017

Understanding Your Mortgage in 2017

2017 is set to become a turning point year in many ways, including for your mortgage. After a steady six years of falling rates on home loans, it is safe to say that this year your mortgage will be anything but safe. Experts, from bank CEOs to economic forecasters, are sounding the alarm expect home loan interest rates to continue rising over the next 12 months.

With if the RBA Never Raises Rates?

Whether the Reserve Bank of Australia puts out a rate hike or not, your mortgage will still be impacted. So far, the RBA has not made any moves to increase rates or to shift from their policy choices over the past few years, cutting interest rates every year since 2011. The next rate decision will be made on 7 February. Forecasters predict that the RBA will not make any changes then either. After that, there is a 63 percent chance that rates will rise by this time next year.

However, the big banks and other major non-bank lenders have been raising rates over the past several weeks. This is in response to Donald Trump taking over the presidency in America. With Trump hinting at big infrastructure spending, there is a need for more bonds to fund these potential massive projects. Increased demand causes bonds to be more expensive, so rates go up. This is why you have seen the rates on U.S. treasuries rise and the ripple effect has hit the Australian mortgage market as banks move to secure their own finances in wake of the higher funding costs. As a result, you may be paying more each month to pay for your home loan this year.

The Changes to Fixed and Variable Rates Are Not the Same

Thus far, fixed rates on home loans have been climbing. This is because fixed mortgage rates tend to go up when there is an expectation of inflation and higher interest rates around the world.

Banks and other lenders may increase variable rates as well if the rates on U.S. Treasury bonds keep going up. Again, this would be in response to capital market changes, not the RBA, taking some homeowners off-guard and leaving them with much higher expenses if they are not able to refinance before the rates go up even more. A rise in variable rates isn’t definite. Chief economist at CommSec, Craig James, believes that the variable rate will not change too much during 2017.

Can You Save Money on Your Mortgage This Year?

That depends on how good of a rate you started out with. With all the uncertainty right now, as forecasters watch to see if the Australian dollar will remain weaker against the U.S. currency, and as capital markets continue to change in response to the change in government in America, there is a lot of competition between lenders. You should be able to get a rate below 4.5 percent if you refinance. Do not be afraid to let your lender know that you will switch to another bank if they will not refinance your mortgage at a better rate.

Even though fixed rates have increased the most so far, while variable rates have not changed as much, you still may want to think about switching to a fixed rate. This is especially true if you need to count on fixed mortgage payments for the next couple of years, or for however long you manage to secure a fixed term. If variable rates go up later this year or in 2018, you could end up paying well over $100 a month more for your mortgage repayments.

Refinancing can help if rates keep going up as they are expected to. Pay attention to the inflation rate as well as what is going on with the U.S. economy, as both factors could lead to more rate rises in Australia that will directly impact your mortgage.

Written by Refinancing.com.au


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