Find out our interest rate predictions for 2022 and if your home loan could be impacted
19 January 2022|4 minute read
2020 and 2021 saw record low interest rates hit Australia’s shores, but what will home loan interest rates look like in 2022?
While we can’t tell you exactly what might happen to interest rates in 2022, we can provide some predictions. Due to the unpredictable nature of the COVID-19 pandemic, things can change rapidly with the onset of new variants and new challenges.
It’s a good idea to stay on top of news regarding Australia’s economy and property market so you can make informed decisions about your home loan and property buying.
In this article, we’ll look at whether rates are likely to increase or decrease, how to prepare for an interest rate hike, and whether fixing your interest rate is a smart move.
Interest rates are likely to increase in 2022, based on trends seen in 2021, predictions from economists and movements from various lenders.
These rate increases likely won’t come as a result of changes to the official cash rate (OCR). However, even if the Reserve Bank of Australia (RBA) chooses not to increase the cash rate, banks have already started raising interest rates.
This can be seen in the rising fixed home loan rates across many Australian banks and lenders in late 2021. Home loan interest rates below 2% are already becoming rarer, but any rate increases in 2022 are expected to be marginal.
So, this doesn’t mean that you should panic or that your repayments will suddenly increase dramatically. Rates have been at historical lows recently, so the gradual increases we are seeing are part of the economy correcting itself after a volatile two years.
There are multiple factors contributing to a rise in interest rates. Here are four of them:
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 previously suggested a cash rate increase in 2024, but economists believe that the cash rate could be increased in late 2022 or early 2023.
One benefit of the eventual cash rate increase is that it could influence a downturn in house prices due to borrowers having reduced budgets. This has the potential to help first home buyers with smaller budgets enter the property market.
As interest rates increase, so will your monthly repayments. So, it’s a good idea to be prepared. Here are some tips:
In October 2021, the Australian Prudential Regulation Authority (APRA) increased the minimum interest rate buffer that lenders use to assess the serviceability of home loan applicants.
This buffer (now increased to 3%) is supposed to account for interest rate increases to ensure borrowers will still be able to make repayments if their interest rate rises.
It depends on your individual situation. A fixed interest home loan offers stability and security at a time when the economy has been volatile.
With a fixed rate mortgage, your interest rate won’t be affected by any rate fluctuations during the fixed term. So, borrowers can lock in a fixed interest rate for the next 1-5 years and not have to worry about rates rising.
However, if you are used to having a variable rate home loan, there are a few differences you should be aware of before making the switch to a fixed rate:
There are still some competitive fixed mortgage rates out there, so if you’re interested, it’s a good idea to start moving. If you’re not sure where to start, get in touch with your local Aussie Broker today.
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