Banks Raise Fixed Rates Ahead of RBA Decision

In a clear sign that lenders are preparing for interest rate rises, Commonwealth Bank and NAB have both increased their fixed home loan rates in the past week. They're not alone - data shows 34 lenders have hiked at least one fixed rate offering in the past month.

What's Happening?

The big banks are positioning themselves ahead of the RBA's February meeting, where many economists expect a rate hike. Here's what's changed:

Both CBA and NAB are forecasting the RBA will lift the cash rate from 3.60% to 3.85% at the February meeting. By raising fixed rates now, they're pricing in this expected increase.

Why Are Banks Moving Before the RBA?

Fixed rates are based on wholesale funding costs and future rate expectations, not the current cash rate. When banks expect rates to rise, they increase fixed rates in advance to protect their margins.

This is different from variable rates, which typically only change after the RBA moves. So while your variable rate might stay the same for now, fixed rates are already climbing.

Should You Lock In a Fixed Rate?

This depends on your personal circumstances and risk tolerance. Here are the key considerations:

Reasons to Consider Fixing Now

• Rate certainty: Lock in your repayments for 1-5 years
• Budget planning: Know exactly what you'll pay each month
• Protection: If rates rise further, you're protected
• Fixed rates may keep rising: Today's rates could be lower than next month's

Reasons to Stay Variable

• Flexibility: Make extra repayments without penalties
• Offset accounts: Most fixed loans don't offer full offset
• Break costs: Exiting a fixed loan early can be expensive
• Rates might not rise: Westpac and ANZ predict rates will hold

The Split Loan Option

Many borrowers are choosing a split loan - fixing a portion while keeping the rest variable. This gives you:

• Some certainty on repayments
• Flexibility to make extra payments on the variable portion
• Reduced risk if rates move in either direction

Current Fixed vs Variable Rates

Here's how the current rates compare:

What We Recommend

There's no one-size-fits-all answer. The right choice depends on:

• Your cash flow and ability to handle rate rises
• Whether you plan to sell or refinance in the next few years
• How important flexibility is to you
• Your risk tolerance

If you're unsure, a split loan often provides the best of both worlds.