Economist forecasts the future of home loan interest rates

by Madison Utley10 Feb 2021

New record low home loan rates continue to be set, with a 1.69% offer having just appeared on the market; but, how long can we except these exceptional figures to hold?

According to Canstar money editor, Effie Zahos, we have awhile yet.

“Interest rates will remain at rock bottom for the next three years,” she said.

 “Fixed rates are likely to rise before variable rates do as the longer-term bond market starts to anticipate monetary tightening a few years ahead.”

There are currently 138 home loan rates below 2.0% currently on the market, according to Canstar data.  

It is customer-owned Greater Bank now offering the market-leading low of 1.69% on its 1-year fixed rate for owner occupiers paying principal and interest. 

As Zahos sees it, now may be the time for mortgage holders to consider fixing all or part of their loan as fixed rates continue to drop.

“Today’s move from Greater Bank proves competition is still rampant in the home lending space and it may make sense to lock in either some or all of your home loan if you want to take advantage of these rock bottom fixed rates before they swing the other way round,” Zahos said.

“If you’re going to lock in a competitive rate for one year then it’s important to understand the other rates on offer from that lender, as that’s what you will be facing at the end of the fixed term unless you are willing to move again.

“If the lender offers a suite of competitive fixed rates then you could consider splitting your loan across several fixed terms and even a variable rate. This way after the one-year fixed rate expires you’re not exposing the entire loan to whatever the market rates are at the time as you’ve locked in to various terms. 

Further, if a lender allows it during the fixed terms a borrower is able to double or even triple the amount of  additional repayments able to be made by splitting a loan into multiple fixed rate terms.