December Interest Rate Rise

 

The RBA lifted interest rates again yesterday to 3.75%. The 0.25% increase was expected, although the coverage of this has been reduced due to the happenings in Canberra over the past week or so. The unexpected move came from Westpac Bank raising their interest rates by 0.45%.

 

If you have a Westpac loan and would like a review of your loans please contact our office and we’ll organise our in-house mortgage broker Richard Jefferies to review your situation.

 

On the RBA rate rise UBS said, as always, the post rate hike press releases are often more about justifying why rates were hiked than providing insight into the future, and it's not unusual for the tone through a tightening phase to become less hawkish as the RBA moves the cash rate progressively closer to neutral”.

 

On balance, there appears little in yesterday's statement to strongly guide near-term rate expectations said UBS. However, the forecast that "Growth in 2010 is likely to be close to trend and inflation close to target" clearly implies a cash rate much closer to neutral than today's 3.75%, i.e., rates are likely to be increased further – albeit gradually – over time said UBS.

 

One has to remember that interest rates are still at generational lows and below the target of the RBA being around 4.5 to 5.5%. The media will again report the rate rise as a travesty in order to sell newspapers and advertising space on the 6pm news.

 

On the global front the GFC is not over. Last week we saw companies in Dubai with lending issues and sharemakets around the world tumbled on the news. Whilst progress has been made on sorting out the repayment of this debt, there are still debt contracts which need to be rolled over in 2010. In Greece for instance there is approx US $70 billion which is starting to get bankers nervous.

There are also issues with supply in the Gold Bullion market which are yet to make front page news. The world economy is not out of the woods by any means and the RBA is doing its best to ensure our economy continues to avoid any further major bad news. We expect to see the volatility in our sharemarket continue.

 

With every rate rise comes the debate

'should I fix my home loan or not'?

 

Let ' s compare the current interest rates:

 

Currently the Top Banks are offering variable home loans between 6.20 to 6.75%.

 

Fixed Rates for 3 years are being offered between 7.49 to 7.79%

 

Fixed Rates for 5 years are being offered between 7.89 to 8.89%.

 

If you fixed a $300,000 loan today for 3 years you be paying approx $5,500 per year in extra interest repayments.

 

If you can afford to repay an extra $5,500 per year on your mortgage, then you need to call us to find out you can get this extra amount working for you to pay off your home loan in 1/3 of the time.

 

The point is the banks have already factored in any future rate rises to their current rates. They are in business to make money and have factored in a degree of risk of future rate rises.

 

So before you make a decision to fix your rate call our office and have a chat about your circumstances. We can have Richard our mortgage broker look at home loan options for you to find you the best deal.

 

Another reminder, it’s not too late to get your Wills and Powers of Attorney organised before you hit the roads and airports on your family holidays. Please call Jacinta if you wish to get these arranged. contact us.

 

Information contained in this document is General Advice and does not take into account any person's particular financial objectives, situation or particular needs. Before making a financial decision based on this advice you should consider, with or without the assistance of a financial adviser, whether it is appropriate to your particular financial needs, objectives and circumstances.

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