The big news on the interest rates front over the last few days has come from overseas.
In the US, the Federal Reserve last week pushed through a 0.50% rate reduction, in a move that should have positive flow-on effects for the global economy.
A little closer to home, and most of us are watching and waiting for 9th October, when the Reserve Bank is scheduled to deliver its next Official Cash Rate verdict—which experts are now predicting will be a reduction of either 0.25% and 0.50%.
Following that, we’ve got just one more OCR announcement before the end the year, on 27th November, which (depending on how things play out over the coming weeks) may bring another reduction as well.
What does that mean for anyone refixing or taking out a new mortgage at the moment?
For anyone either about to roll off an existing fixed term, or who’s settling on a new property in the coming weeks, the recommendation would be to think about sticking on a floating rate just for the next month or two.
The reason for that is because, if rate cuts play out as expected over the remainder of this year, there’s a good chance that one-year fixed rates should be sitting below 6% by Christmas—with some rates potentially as low as 5.50%.
There are a couple of things to bear in mind if you’re keen to roll onto a floating rate
Tip #1: If you’re rolling off an existing fixed-rate mortgage, you don’t need to do anything.
Your bank and / or your mortgage broker should get in touch with you about 60 days our from when your current fixed-rate loan is set to rollover. If you’re keen to transition to a floating rate, you don’t need to do anything.
When your loan matures, you’ll automatically roll over onto a floating rate—and then be able to refix at a later date once those further rate cuts have started to come through.
Tip #2: Don’t be afraid to ask your lender for a better floating rate.
Floating rates tend to sit quite a bit higher than fixed rates out in market, which is why it’s not a strategy you want to stick with any longer than you need to.
It’s reasonable to expect a 0.50% discount off the advertised rate—which will help create a little bit of space in your budget, while you wait out further rate falls before you lock in.
Check in again next week for our latest update on what's been happening in the world of interest rates.
