Mar 23, 2018 | Wealth management

5-Part Interest Rate Series: Part 4

Welcome to our 5 part series where we’ll explore the factors that may drive interest rates over the coming year and what you can do to insulate yourself against any changes.

Click here to read part 1
Click here to read part 2
Click here to read part 3

Part 4: The Impact of Rising US Interest Rates on Local Interest Rates

Welcome to part 4 of our 5 part series where we explore the Impact of Rising US Interest Rates on Local Interest Rates

This week we saw the American Federal Reserve hike interest rates by 0.25% to a range of 1.50% – 1.75%. It’s the first time since the year 2000 that the US cash rate has surpassed Australia’s. Most economists had priced in 1 rate rise in Australia, likely in the 4th quarter but this sentiment has now changed and the expectation is that the RBA will leave our cash rate on hold through 2018 at 1.50%. So if the RBA is planning to keep rates on hold this year, Aussie customers will be spared the pain right? Unfortunately not.. The US Federal Reserve is planning a further 2-3 rate rises throughout 2018 which will have flow on effects and impact Aussie mortgage customers, here’s why.

It’s important to remember that the Australian Banks don’t set their mortgage rates based on what the RBA rate is. Banks ultimately answer to shareholders so at the end of the day healthy margins are the priority. We’ve discussed the fact that our Banks rely on deposits in order to lend money but they also get a substantial amount of their money from overseas – from bond markets. This is where the US rate rises come in to play. The increased Federal Reserve rate will push up the price of bonds meaning Aussie banks are paying more for their funding. The banks will pass this increased cost on to customers instead of sacrificing their profit margins.

It may be a good time to consider fixing your home loans, or in particular your investment loans. I’ve never been a huge fan of fixed rates but there are some benefits in the current climate. Fixed interest rates bring the benefit of knowing exactly what your repayments will be, month in month out. If rates do rise you’ll be insulated against increased repayments.

If you’d like to discuss your options or no more about fixed rates contact your financial adviser or accountant. We can access products from over 25 lenders to ensure you get the right loan for your situation.

Disclaimer: This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

This information has been prepared by Primestock Securities Limited ABN 67 089 676 068, AFSL 239180 (“Prime”). Prime accepts no obligation to correct or update the information or opinions in it. This information does not take into account your objectives, financial situation or needs. Before acting on this information, you should consider whether it is appropriate to your situation. It is recommended that you obtain financial, legal and taxation advice before making any financial investment decision. Prime is bound by the Australian Privacy Principles for the handling of personal information.

SPEAK WITH US TODAY

A unique and personal service approach and support for all your business advisory and personal wealth management needs

Request a free consultation

A unique and personal service approach to support all your business advisory and personal wealth management needs.

Request a free consultation