Over recent weeks the cost of funding has increased for lenders. If this continues it’s likely only a matter of time before it results in variable rates going up and the cost of your home loan repayment along with it.
At the same time, fixed rates have never been lower.
Funding costs typically influence lending rates. When these costs go up most lenders, including the major banks, have passed the increase in funding costs through to their home loan customers in the form of higher rates. We saw during the GFC this kind of increase impacts each lender differently depending upon their sources of funding.
The larger groups are able to rely on deeper pools of funding from deposits and this partially protects them from these increases. You may have noticed these lenders increase term deposit and savings rates – it could be argued this was a move to attract additional deposit funds.
With this potential impact on variable rates in mind, you should be asking yourself if now is the time to fix.
Fixed rate loans are funded in a different way than variable rate loans.
The funding cost for a fixed rate loans is locked in by the lender for the same amount and term. This protects both the lender and the borrower from movement in funding costs. Many of our clients are fixed a portion or all of their home loans at the moment as they can’t see the variable rate going down and staying down for the next 3 years.
A couple of points to note about rates right now:
- The current 3 year fixed rate is about half a percent lower that the discounted variable rate.
- If you stay on a variable you will pay a higher rate initially by not taking up a fixed rate offer. The question is then whether you forecast that the variable rate will spend more time below the fixed rate level over the 3 year term?
If you have questions about how this impacts you or if you can have a portion of your loan fixed and a portion variable feel free to get in touch.