The Domino EffectBy Dave Fleming : 19 November, 2018
Avoiding the interest rate
hike domino effect
When one bank hikes its interest rates, the rest usually follow one after the other like dominoes. Here’s how to avoid getting caught up in the chain reaction.
You may have seen the news last week that Westpac has raised variable home loan rates.
But if you missed it, well, no one can blame you.
It’s common knowledge that banks try to time their bad news right when it has the chance of being buried by other events. And what better time than after a change in Prime Minister?
The 0.14 percentage point increase came just days before the Reserve Bank announced that it would keep the official cash rate on hold at 1.5% for another month, extending its record rate freeze to a 25th consecutive month.
But as we’ve seen, just because the Reserve Bank keeps the official cash rate on hold doesn’t mean banks won’t make their own business decisions.
The domino effect
Usually when one of the big 4 banks makes a move, the rest soon follow.
That’s because the first bank to do so gives the others cover. It takes the heat off them, so to speak.
However, if they follow suit too early, the move looks a tad cynical. Wait too long, however, and the cover provided wears off.
Long story short: it’s been just over a week since Westpac’s announcement, and many are tipping the other banks to make a similar announcement any day now.
What you can do
Ok, so if there’s a good chance that interest rates are on the way up, what can you do?
Well, first and foremost you can visit us for a home loan health check where we can run you through the below options:
– Shop around: Lenders are always jostling for new customers with competitive deals. If you haven’t refinanced recently, chances are you may be missing out. Refinancing doesn’t always mean changing banks, either. If you find a better rate elsewhere there’s a chance your current lender might match it.
– Lock in a rate: Rate increase speculation isn’t limited to the big 4 banks. Half of Australia’s leading economists in the nation’s longest running survey – the BusinessDay Scope economic panel – believe the RBA will lift its cash rate by the end of the financial year. Now might be a good time to lock in a rate you’re happy with.
– Consolidate your debts: If you have a credit card, car loan or other personal loans, you can save money if you refinance and consolidate them into one loan. This will give you one simple repayment to make each month instead of a bunch of them, which can help you avoid late fees. Also, all your debts are charged at the home loan interest rate, which is usually much lower than a credit card rate.
Get in touch
To find out more about avoiding getting caught up in an interest-rate hike domino effect, get in touch.
We’d love to help you find a home loan that you’re happy with – regardless of market movements.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.