However,since then,official interest rates have risen rapidly from 0.1 per cent to 1.35 per cent,as the Reserve Bank of Australia attempts to dampen runaway inflation. The major banks now expect the cash rate to be between 2.6 per cent and 3.25 per cent by November.
This means the era of 2 per cent fixed-rate home loans is long gone. Homeowners looking to refinance onto a fixed rate in the months ahead can expect a hefty increase in their monthly repayments,dubbed a “fixed-rate cliff” by some market watchers.
For example,a homeowner with a $750,000 loan who fixed it for two years in December 2020 at a 2.08 per cent interest rate is likely to be hit with an average revert rate of 6.68 per cent in December this year,upping their monthly repayments by $1784,or 56 per cent.
Even those looking to refinance on the fixed rates currently available would be lucky to find a rate lower than 4.5 per cent.
Variable rates are substantially lower – about 2.7 per cent at some lenders – but will likely rise in lockstep with official rates to be near 5 per cent by the end of the year.
This places refinancers between a rock and a hard place:do you bite the bullet and fix at a higher rate,or try to save some cash now by opting for a temporarily lower variable rate?
According to Graham Cooke,home loan expert at Finder,a bit of both might be the best option.