Fixed rate package interest rates trending up

Since fixed rate home loan rates are rarely published online, i decided to do a survey in person. I went to a bank i have been to five months back and found out that indeed the 1 year fixed rate package is now at 3.68% as reported. The last time i was there it was 2.68%, a whopping 1% increase!

The fixed rate package scheme is a tricky business for banks. Banks will have to make a good guess as to what interest rates will be like in 2 or 3 years’ time. If the rates turn out to be higher than expected, they will be paying higher interests on the cash that they in turn are loaning out and their margins will be squeezed. Hence banks have to be very conservative and quote a safe (as in high) rate.

Looking at the way interest rates are moving, i must say that people who have chosen a 2 or 3 years lock-in five months ago have chosen wisely. They can have peace of mind for the next 2 or 3 years. For the rest of us who can stomach more risk in opting for variable rate packages, lets hope the current savings in interests will still be able to offset the increase in future interest payments, and lets hope your investments will do better than 4%. All the best!

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