Following Tuesday's cash rate rise, buyers may be wondering if it's time to restructure their mortgage. But one financial adviser has warned against trying to predict the market.
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Nick Lucey, director at Canberra's Nest Advisory Group, said an impending rate rise has been part of the conversation with his clients for some time.
"I think most people have been anticipating that there would be an interest rate rise," he said.
Whether to go with a fixed or variable interest rate has also been on buyers' minds.
"If you're buying a home and you're thinking about whether to go fixed or variable you're kind of paying a premium to lock in the fixed rate now, anticipating that rates are going to rise quickly, compared to going [with] a cheaper variable rate now," Mr Lucey said.
Why choose fixed?
A fixed rate, which remains unchanged for a period of time, is ideal for buyers wanting some assurance in their borrowing, Mr Lucey said.
"A fixed rate is good if you want certainty and peace of mind about what your repayments are going to be for the next one, two, three years," he said.
"You may not be planning to make a lot of extra repayments and you're not planning to sell or refinance in that period."
Why choose variable?
Conversely, if you're looking for more flexibility, Mr Lucey said opt for a variable rate.
"Pick a variable loan if you want things like unlimited amounts of extra repayments you can make, you're not being locked into anything. It's sort of flexible and you can have the benefits of things like an offset account.
"A variable loan is good if you want freedoms ... but accept that the rate may change.
"Some clients are choosing a portion fixed and a portion variable to try and get the best of both those worlds."
Don't try and 'beat the bank'
For home owners looking to fix their loan, Mr Lucey said it's a simple switch.
"Most banks you can just call the customer service line and ask to fix it over the phone," he said.
"I guess the trade off or the consideration that people are making is [they are] locking in probably a higher rate now, if they want to go fixed, than if they were on a variable rate now.
"The reason why they would do that is because they're expecting the RBA to raise rates quite a lot and quite quickly."
But Mr Lucey warned buyers against trying to predict the market.
"My advice is don't pick fixed or variable to try and beat the bank on interest because you probably won't," he said.
MORE PROPERTY NEWS:
While the RBA has warned future interest rate rises are ahead, buyers will be somewhat protected by loan serviceability assessments.
"When we look at the affordability for a home loan for someone, there's all these buffers already built into that," Mr Lucey said.
APRA announced tougher serviceability requirements in October, making it more difficult for some buyers to secure a mortgage.
Lenders are now required to assess whether new borrowers could still service a loan that is at least 3 per cent higher than what they are applying for, up from the previous 2.5 per cent requirement.
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