US financial situation could push up home loan rates faster than expected

The US financial situation could speed up rising home loan interest rates in Australia if the US raises their debt ceiling, and one of Australia’s biggest comparison websites finder.com.au is warning borrowers to be prepared for higher costs.

finder.com.au calculated that a rise in interest rates could have a big impact on the $1.47 trillion Australian residential home loan market.

[sam id=31 codes=’true’] In fact, if interest rates increased by 0.25 percentage points, monthly repayments on the total value of home loans across all authorised deposit-taking institutions (ADIs) would increase by about $233 million.

If the average variable interest rate returned to normal levels of about 7 percent, that would cost borrowers a combined $755 million extra in monthly repayments.

Michelle Hutchison, spokesperson for finder.com.au, said that if America’s raises their debt ceiling, it could impact funding costs in the Australian home loan market.

“Our lenders source about a quarter of their funding from offshore according to the Reserve Bank, so even a small amount of funding pressure will likely impact the cost of home loans as lenders would pass on the costs to borrowers.”

“It’s important for borrowers to be prepared for rising interest rates because it’s only a matter of time before rates rise. And the US could be speeding this up much faster than we expected.

“Interest rates are currently at record lows. The average variable home loan rate across finder.com.au’s database is currently 5.63 percent and it was only two years ago when variable rates were around 7.4 percent, while the average for the past decade was about 7 percent.

Mrs Hutchison said there are several ways that borrowers can prepare now for rising costs to avoid financial hardship when interest rates rise.

 “Existing borrowers should be looking to reduce their home loan costs as much as they can by comparing their home loan to other lenders. For instance, variable rates currently range from 4.49 percent up to 7.05 percent. This difference of 2.56 percent could mean a saving of $488 per month for a typical $300,000 home loan. That extra money could come in handy once rates start moving up.

“For those planning to buy a home soon, factor in your budget for at least a 2.00 percentage point increase in interest rates. For a $300,000 home loan, that means you need an extra $400 per month at least to cover costs for rising rates.

“Another good option is to consider fixing your home loan. We’ve never seen fixed rates so competitive and if rates start to rise, we may never see fixed rates this low again – or at least for a long time.

“Whatever the outcome of the US financial situation, interest rates will eventually rise to normal levels again so borrowers should be prepared with the right tools and review their home loan situation before it’s too late.”



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Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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