Will Interest Rates Rise Or Fall In 2022?
Australia has been some record low interest rates in 2020 and 2021, but what will interest rates look like for the new year? Predicting interest rates can be a very difficult thing to do, but we can tell you what Barwon Mortgages expects from 2022 interest rates.
Covid-19 has caused interest rates to become very unpredictable in the previous years, so its always a good idea to stay prepared and keep on top of the latest updates and changes regarding Australia’s economy and property market.
Are interest rates likely to rise or fall?
Based on trends in 2021, and predications from economists and movements from various lenders, it is very likely that interest rates will rise in 2022.
It is not likely that the interest rate rise will come from changes in the official cash rate. However, even if the Reserve Bank of Australia chooses not to increase the cash rate, lenders have already started raising interest rates.
This can be seen already in the rising fixed rate home loans across many different Australian lenders in the late 2021. Currently Home loan interest rates below 2% are already becoming less and less common, but any expected rate increase in 2022 is expected to be marginal.
This does not mean your repayments will increase suddenly or dramatically. Rates have been exceptionally low recency and the gradual increases we are starting to see now are apart of the economy correcting itself after the previous volatile and unpredictable two years.
Why are home loan interest rates increasing?
There can be multiple different reasons see as to why the interest rates are now increasing and that is due to the following:
Economic recovery post Covid-19 pandemic, as interest rates were lowered to assist borrowers during a difficult time, now that the economy is seeing a positive growth again, rates will start to increase.
The end of the Term Funding Facility, The RBA introduced the TTF in March 2020 to encourage lending to households and businesses, as it gave lenders more funding at a low interest rate of 0.25% which enabled lenders to pass on the lower interest rates to its clients. The TFF ended in June 2021
To account for rising costs of business, the cost of business operations has increased for many lenders in Australia, and they will need to cover those costs by increasing interest rates. Lenders will also increase interest rates for profit as well as it being a requirement.
Expectations of a cash rate increase, the case rate may not increase as yet, but when it does interest rates will be sure to follow.
Will the official cash rate stay the same in 2022
RBA governor Philip Lowe has indicated that the cash rate won’t be raised until inflation is within the 2-3% target range.
The RBA have suggested a cash rate increase in 2024, but economics believe that the cash rate could be increased sooner that that, even in late 2022.
One benefit to the cash rate increase is that it could influence house prices to go down due to borrowers having a reduced budget. This will allow potential for more first home buyers to enter the property market, or clients who are on a lower budget.
How to prepare for an interest rate increase
When interest rates increase, so will monthly repayments on your home loan and following the below tips to be prepared for that to happen can assist you greatly.
Review your finances, reassess your budget and decided on where you can save money so you will be less impacted by the interest rate rise.
Make extra repayments, if you’re able to make extra repayments on your home loan this can bring down your loan balance resulting in you being charged less interest in the future.
Minimise other debt, look at consolidating debt such as credit cards, personal loans, or car loans. Work on bring theses balances down.
Consider refinancing, talk to a broker to ensure you’re getting the best deal or that your current loan is suiting your needs and circumstances.
Consider fixing your interest rate, fixing your interest rate can help alleviate stress with the security and knowledge that your interest rate will remain the same.
Be smart with your savings, having savings in the bank can also bring security and added peace of mind, also consider opening an offset account so further bring down interest charges.
Should you fix your interest rate?
Every situation is different, but a fixed interest rate can offer stability and security during a volatile economy.
A fixed rate ensures your interest rate will not change and can be fixed for a period of up to 5 years.
Some of the differences between a variable and fixed interest rate are as follows:
Less flexibility, you will be capped at how much extra interest repayments you are able to make. You may also face break costs if you change your mind in the future.
Fewer home loan features, its less common to have the option of a re draw facility or offset account.
Rate doesn’t change, should interest rates fall, you will not benefit without facing break costs
Refinancing can be more difficult; break charges can be incurred if you decide to refinance before your fixed term is completed.
There can be many different options and risks associated with your mortgage, if you are unsure about whether you’re prepared for the future, speak to us about your personal circumstances to ensure your are well informed.