Risky time to lock in rates

ALTHOUGH banks continue to raise home loan rates, it could be too late to think about fixing your mortgage if you want long term savings.

Cash padlocked /file

Risky time to lock in rates

INTEREST rate certainty comes at a cost, a financial research firm warns.

With rates rising at the major banks and another Reserve Bank meeting today, homeowners may be tempted to lock in their interest rate.

But Cannex financial analyst Lauren Newlands says there is a risk we are at the top of the cycle "and it's very likely rates will come down at some stage of the fixed period leaving you locked into higher repayments''.

Another potential expense is if you have to sell your home before the fixed contract is up.

"A break cost can be charged when a fixed loan is exited before the full term,'' Ms Newlands says.

"A break cost can be thousands of dollars but, unfortunately, there is no fool-proof method of calculating this cost, as many other factors are taken into consideration, not the least the wholesale money market which is very volatile and changes virtually on an hourly basis.''

Banks still hiking

St George Bank yesterday lifted its variable home loan rate well clear of its rivals with a hefty 10 basis point rise to 9.47 per cent.

The 0.1 percentage point rate rise is effective from Thursday and will cost St George customers another $17 a month on an average size mortgage of $250,000 over 30 years.

St George's announcement comes amid analysts' forecasts that the big banks, which have all announced increases greater than this month's RBA rise of 0.25 percentage points, have not yet fully offset their own funding costs.

Reserve Bank governor Glenn Stevens last week warned it was no longer realistic to expect banks to restrain their rates to the official rises in the current global financial environment.

St George last month lifted its rate by 35 basis points to 9.37 per cent.

Last week, Westpac Banking Corporation moved to match its major rivals, with a 10-basis-point increase to 9.37 per cent.