While the official cash rate has remained on hold since August 2016 many experts, including ex-RBA board member John Edwards, are forecasting imminent rate rises.
Mr Edwards has predicted eight rises in the next two years, bringing the official cash rate up from the current historic low of 1.5 per cent to 3.5 per cent in 2019. This could lead to an extra $250 a month in repayments on a $300,000 mortgage.
Rate rises are never an appealing prospect for mortgage holders and one way of alleviating extra mortgage stress is to choose a fixed rate home loan.
Is a fixed loan right for you?
The major advantage of choosing a fixed rate is the extra peace of mind it offers, as mortgage holders know exactly how much they need to set aside each month. This makes budgeting a lot easier and can help people feel secure in their financial future.
Fixed rate loans can have drawbacks though, including having less flexibility than variable rates. This means that you may not be able to make extra payments or have a redraw option on your loan.
Are there other ways to prepare for higher interest rates?
While many will look to a fixed home loan to prepare for possible interest rate hikes, there are a number of other options to help you avoid mortgage stress in the future. They include:
– Make higher payments now to create a mortgage ‘buffer
– Cut back on monthly spending so your budget can handle higher rates
– Shop around and find a cheaper home loan rate
– Consider a partially fixed home loan