With the Reserve Bank of Australia [RBA] announcing the first interest rate rise in more than a decade on Tuesday, a local broker is encouraging borrowers to "look into their crystal ball" and prepare for further rate rises in coming months.
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The RBA raised interest rates for the first time since 2010 in response to surging inflation, which has reached a 20-year high of 5.1 per cent.
The cash rate rose from 0.1 to 0.35 per cent.
Access All Loans broker Greg Sly said it's essential borrowers schedule a meeting with their local broker as soon as possible to see how rate rises will affect them.
"There's a lot of chatter between economists at the major banks that the cash rate could rise by 1.5 to two per cent over the next two years, so it's essential borrowers look at their circumstances to ensure they don't get stung by interest hikes," Mr Sly said.
"At the moment, interest rates are still at historically low levels, but many current mortgage holders have never experienced rising interest rates, so they'll have to plan ahead."
ANZ economists are predicting the cash rate could rise to 1.5 per cent by the end of 2022, and possibly as high as 2.25 per cent by May next year.
Mr Sly said this will mean increased repayments for borrowers on variable interest rate loans.
"When we talk to our clients, it's important to gauge what's more essential: the lowest rate, or having security through a fixed interest loan," he said.
"Some customers are splitting their loans between fixed and variable rates, and expect more will consider fixed rates in the coming months and years as the cash rate rises, however it's important to note fixed rates have higher penalties when paid out early."
Mr Sly said it will take a few successive rate rises for variable rates to exceed fixed rates across most borrowing networks.
"If we use 4.3 per cent as a generic three-year rate, it would take around six rate rises before a customer starts to lose out on a variable rate," he said.
"That's the crystal ball though: how high are they going to go, and how quick."
Mr Sly said he's recommending borrowers consider splitting their loans between fixed and variable rates to prepare for the likelihood of further rate rises.
"Anyone that has secured a loan in the last decade has enjoyed reductions in cash rates against increasing property prices," he said.
"While the initial increases won't be too harsh, what comes after may require careful budgeting, so I'd advise mortgage holders to plan accordingly in anticipation for future rises."
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