Borrowers warm to fixed rates

Historically-low fixed interest rates have caught the attention of borrowers, who increased their demand for fixed rate mortgages this year.

RateCity data shows 22 percent of all its home loan applications in January, and 17 percent in February, were for fixed rate mortgages up from an average of 16 percent per month in 2012.

January applications through the site showed an almost 50 percent jump in uptake of fixed rates compared to January 2012.

Australian Bureau of Statistics data also shows a growing interest in fixed rates among borrowers, with 60 percent more fixed loans settled in 2012 than 2011. In fact, there were about 69,000 fixed rate home loans financed in 2012 according to ABS figures.

The average three-year fixed rate is 5.47 percent while the average variable rate is 5.89 percent. While average variable rates have previously been below 5.89 percent in the past, average three-year fixed rates have never been this low according to RateCity.

Michelle Hutchison, spokeswoman for RateCity, said home loan rates were available below 5 percent.

“Both three-year fixed and variable home loan rates start from as low as 4.99 percent,” she said.

And, she said, rates had continued to drop in recent weeks. “Several lenders cut fixed rates today by up to 30 basis points,” she said.

Variable rates also appeared to be on their way down, with several of out of cycle variable rate cuts made recently.

“It’s unusual to see more borrowers locking in a fixed rate while variable rates are falling because borrowers generally feel they will miss out on the savings of lower variable rates,” she said.

“Usually when variable rates fall there is less demand for fixed rates. RateCity looked at the past few rate cycles and all show a drop in popularity for fixed loans when variable rates fall.”

Yet some experts believe now is the perfect time to lock in at least part of your home loan rate.

Mitchell Watson, analyst at financial services researcher Canstar, said: “Even back when interest rates did bottom out in 2009, we didn’t see interest rates as low as below 5 percent.”

“There is no telling how low fixed interest rates will go but obviously they will have come to a point where they can’t go any lower,” he told News Ltd.

He said a split loan with a fixed and variable part is a good option for those unsure which way to go.

Compare home loans in Australia