Have people missed their chance at fixed interest rate mortgages?

As rate rise pain piles onto households, the certainty of a fixed-rate home loan now comes with a heavy cost. Here’s why.

Rapid-fire rate rises by the Reserve Bank of Australia are doing more than piling financial pressure onto households with home loans – they’re pushing some into a corner from which there seems no escape.

While commentators have recently claimed that many borrowers are able to handle these higher rates because they got ahead on their mortgage repayments during Covid lockdowns, it’s worrying that there are millions of Australians who live payday to payday and usually spend everything they earn.

Tuesday’s 0.5 percentage point RBA interest rate rise takes the total interest increase to 1.25 per cent since May – about $340 a month on a $500,000 mortgage.

How do people with no room in their household budget deal with that kind of damage, plus the fear that rates will continue rising – potentially by at least another 1 per cent in the coming months?

Those in the most trouble are recent homebuyers who borrowed heavily in the house price boom after believing the RBA’s previous comments that rates would remain near record lows until 2024.

People now wanting to lock in a fixed-rate home loan – delivering certainty of repayments rather than today’s variable rate rocket – will sadly find that the fixed ship has sailed.

Last week’s big bank fixed rate rises of up to 1.5 per cent were staggering and scary. The The Commonwealth Bank’s new 6.39 per cent three-year rate tops the fear factor, and the other majors charge between 5.29 per cent and 5.89 per cent, according to Mozo.com.au, while fixing for four or five years could cost more than 6 per cent.

It’s hard to believe that just one year ago, people could secure fixed rates for around 2 per cent.

Industry wide, the average fixed mortgage rate is more than 4.8 per cent, which compares poorly with the many variable rates still sitting between 3 and 4 per cent.

So we still need another 1-2 per cent or so of RBA rate rises for variable loans to eclipse many fixed rates, and Australia’s economy and households may prevent that from happening.

There are already signs of consumer confidence falling sharply, which may bring an end to the inflation surge and rising rates – and possibly see RBA rates dropping in 2023 or 2024.

Before being panicked into fixing, check the difference between current variable rates and your planned fixed rate, then work out the monthly cost of both and how they affect your monthly repayments.

Stacking up: three Reserve Bank interest rate rises in three months is hurting borrowers.

Also get expert help if you are worried. Talk to your lender about other home loan deals they may have, refinancing options and hardship assistance if you’re struggling.

Consider looking beyond the big banks, which typically charge the most interest. Mortgage brokers and online comparison sites can help people shop around for the best rates on the market.

And if rising rates are causing you real financial problems, speak for free with a financial counsellor on 1800 007 007.

You may have missed the fixed rate boat, but there are other ways to navigate this stormy mortgage market.