The rapid escalation of interest rates

The big story in recent months for existing mortgage holders has been the rapid escalation of interest rates. The past 6 months has seen the most rapid rise in interest rates in over 15 years leaving some tough decisions when current fixed rates do roll. Do I go the cheaper 12m option or pay a premium to book longer term certainty? Inflation is running hot so expectations are the Reserve Bank will be forced to continue with raising the Official Cash Rate, but this needs to be balanced with high household debt, increasing economic pain through COVID lockdowns and the likelihood of sparking an economic downturn if rate rises are too rapid or too severe.

The below graph shows the climb in the advertised 24m fixed rates across a selection of anonymous main bank lenders. This shows 24m rates are up around 1.2% in under three months. Such increases will make a material impact to weekly repayments for households.

The key remains getting good advice and building a structure that supports your goals. Hedging the risk of rate rises while providing interest savings through clever management (e.g. employment of offset or revolving products and having flexibility to pay down debt where budget allows).