3 Reasons to Reconsider Locking in the Interest Rate on your Home Loan

Home Loan

Following the RBA’s decision to hold the cash rate at the historically unprecedented low of 2.25% this Tuesday many Sydney-siders with mortgages are seriously considering fixing the interest rate on their home loan. This would entail increasing the interest rate on their mortgage over a fixed period in order to protect themselves from potential increases in the interest rate. However, here are 3 reasons as to why interest rates will remain at these historically unprecedented lows and perhaps fall below the 2% mark.

The first of these reasons is Australia’s current unemployment rate which stands at 6.3%. This statistic alone is creating tremendous downward pressure on the RBA’s interest rate decisions since a decreasing the interest rate would encourage business activity that in turn would decrease the interest rate

Another reason why interest rates may remain stable or perhaps even drop below 2% is because the Non-commodities Australia economy is failing to show any signs of growth. With low consumer spending and confidence along with low levels of investment into the non-commodities sector the RBA may be forced to reduce interest rates to kick-start this vital sector of the economy.

However, not even the commodities portion of the Australian economy cant counterbalance this hindrance as it too is experiencing slow growth.  With waning global commodities demand particularly from emerging industrial economies and the current volatility and price of oil the commodities sector has failed to drive Australia’s economic growth as it had done so over that last decade which may force the RBA’s hand in reducing the cash rate further in order to spark expansion in any area of this vast sector.

With these factors unlikely to change over a time period potentially as long as 5 years due to Australia’s inability to produce a fiscal response because of its current budget deficit and no solid signs of a global economic recovery many financial planners believe the most financially sound move for those with a mortgage is to stick with their variable home loan rate.

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