Is now the time to consider a fixed rate loan?
In August last year, the Reserve Bank (RBA) cash rate hit a record low of 1.5 per cent, having fallen from 4.75 per cent since mid-2011, and while few economists are calling an end to the interest rate easing cycle, speculation is mounting that at some stage rates will need to rise.
As a growing number of economists and other forecasters believe the next interest rate move will be up coupled with recent out of cycle interest rate rises, homeowners are facing more mortgage uncertainty than they have in years. In this environment, now might be a good time to consider extending the period of low rates by locking in some of the current discounts with a Fixed Rate mortgage.
Although there are still some very low variable rates, a majority of the fixed-rate home loan market has more competitive deals on offer than the average variable rate of 4.39 per cent and experts are saying it’s time for customers to take advantage of this.
New analysis by financial services firm Canstar has revealed on a $350,000 30-year home loan 87 per cent of three-year fixed loans are sitting below the average variable rate by 0.34 per cent. But even if the cash rate was to fall at least once during this period customers would still be better off, their calculations show.
Currently, about 22 per cent of all new home loans are being written on fixed rates, up from 19.4 per cent a year ago, according to recent mortgage data.
Fixed rate mortgages are popular with homebuyers and those looking to refinance because they provide valuable peace of mind; even if interest rates go up, your monthly mortgage payments will remain the same during the term of your deal. Fixed rate terms can range from as little as one year up to five or longer. The rates you pay on a one year term will vary from a five year term according to the direction that lenders think rates are heading and the cost of money in financial markets.
Consider a fixed rate, if you have a need for certainty but also understand the limitations of fixed rate mortgages.