Fixed rate borrowers face the pitfalls of rising rates

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An expert claims that many borrowers have obtained higher rates than what they purchased.

Some borrowers are said to be trapped by banks raising their fixed rates.

Cara Giovinazzo, founder of Brisbane-based brokerage firm Borro, said there had been a recent spate of complaints from borrowers about banks raising their fixed rates after taking out a rate offer. fixed.

“Some clients are caught off guard by the big banks raising their fixed rates and I have a client who lodged a formal complaint after his rate was raised three times before the loan was approved,” Ms. Giovinazzo said.

“He made the decision to go with this bank based on his rate, and with his settlement date approaching, he no longer has the luxury of time to change lenders, effectively trapping him.”

During the last months of 2021, many banks have followed the trend of rising fixed rates in anticipation of a possible rate hike by the Reserve Bank of Australia (RBA).

“We have seen a frenzy of fixed rate hikes from the big banks, with the Commonwealth Bank raising rates four times in just two months, with more than a percentage point added to its four-year fixed rate since. mid-October, “said Giovinazzo. noted.

Borrowers who plan to get a fixed rate should be aware of the additional fees that come with the loan, such as the rate lockout fee which can cost up to $ 750.

“However, some banks do not allow customers to lock in the rate until loan contracts are issued,” Ms. Giovinazzo said.

“As banks take longer to assess loans, you may be subject to rate hikes before this feature is even available. “

Ms. Giovinazzo suggests borrowers consider split loans, which would allow one part of the loan to be at a fixed rate while the other part at a variable rate.

“This gives them some certainty about future repayment amounts, while also allowing them to take advantage of all the flexibility of the features that come with a variable loan,” she said.

Photo by @introspectivedsgn on Unsplash.


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