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Rate hike expected: Is it too late to fix your loan?

8/09/2009

The RBA may have left the cash rate at 3% for the last five months but it could rise as soon as October following new figures that the economy grew 0.6 per cent in the last quarter - the second quarter of positive growth this year.

According to Macquarie interest rate strategist Rory Robertson, the "October rate-hike bandwagon" is "rolling fast" and the RBA is likely to raise the cash rate sooner than the market expected.

The futures market is pricing an increase of 2% in the official cash rate over the next 18 months - although indicating a November rate rise rather than October - with the recent futures market yield curve from RP Data showing it could reach 5.23% by February 2011.

Since the average variable home loan sits at 5.75%, such a hike could mean the interest rates pushing back up to the levels witnessed between November 2006 and July 2007, when rates hit 8.05%. So is now the time to fix? There are still many good deals available in the market, despite the banks raising their fixed rates. Your Mortgage will give you a free report on the where to find the best fixed rate deals.

If the predictions come true, those most affected would be first time buyers in ACT and non first time buyers in New South Wales where the average home loan tops $294,100 and $284,400 respectively - the highest in the country.

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