Negotiation remains the key as rates continue to rise

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As mortgage holders deal with another big hike in official interest rates, the question on the lips of many economic commentators is just how high will the Reserve Bank of Australia (RBA) go in its quest to slay the inflation dragon?

The third consecutive monthly rate rise has pushed the cash rate to 1.35 per cent amid predictions it could reach 2.0 per cent to 2.5 per cent or even 3.0 per cent by the end of the year, with rates last as high as 2.5 per cent in early 2015.

The road to these higher levels of interest rates is also unpredictable with some experts tipping the RBA to go hard every month until the end of the year. Others have forecast the central bank to leave the cash rate alone next month and also in October while it assesses the impact of its rate decisions.

We have been telling our customers at Bell Partners for many months now that they needed to prepare for higher interest rates and that the record low cash rate of 0.10 per cent was an emergency measure that was unsustainable, particularly as factors such as the war in Ukraine have created cost-of-living pressures.

There is universal hope that the conflict in Europe can be concluded, but while it continues the economic outlook remains problematic, including the direction of interest rates.

With inflation tipped to hit 7.0 per cent by December this year, we have already seen variable home loan rates head above 3.0 per cent and fixed rates are around the 5.0 per cent mark. Mortgage holders coming out of fixed rates in the 2.0 per cent range are also in for some pain.

Despite official rates going up, the lending market remains just as competitive as it was when the cash rate was at record lows. Banks are still having to work hard to keep customers and it remains possible to negotiate a lower rate.

There are also cases of lender retention teams offering cash back to customers who make it known they are prepared to switch banks. In this environment, it’s important to seek help from a broker.

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