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Is it the right time to fix your home loan?
The mere mention of the words ‘rate rise’ sends many homeowners into a spin, as they debate the long-term financial benefits of fixing their rate compared to riding out the variable rate rollercoaster. But is now the right time to fix your home loan?
Damian Smith, chief executive of RateCity, says fixed rates are very attractive now. So if you’re worried about rising rates, a fixed-rate could be worth considering.
“Some lenders have announced rate drops to their three-year fixed rates, including ANZ‘s three-year fixed home loan package by 15 basis points to 5.99 percent,” he said.
With three-year fixed rates available below the 6 percent mark, it’s little surprise that fixed-rate home loans are attracting borrowers in record numbers. New figures from Australian Bureau of Statistics (ABS) and analysed by RateCity show there were almost 6000 fixed home loans taken out in December 2011, which is almost 12 percent of all home loans financed. We haven’t seen this large a proportion of fixed home loans since June 2008, according to Smith.
“The major 4 banks’ (ANZ, Commonwealth Bank, NAB and Westpac) average three-year fixed rate (at the time of writing) is 6.38 percent; which hasn’t been this low since June 2009,” he said. “It’s also unusual to see fixed rates lower than variable rates. When the major banks offered three-year rates this low in June 2009, their standard variable rates were lower still.
“But to get the best value out of your home loan you must remember to compare deals before your fixed period ends otherwise you might be worse off.”
Take, for example, a $300,000 home loan fixed for three years at a rate of 5.94 percent (reverting to 7.40 percent following the fixed period, at the time of writing) with Holiday Coast Credit Union. By comparison, one of the best variable rate home loans available on the market (at the time of writing) is with IMB at 6.27 percent.
While the fixed-rate mortgage option appears cheaper, because the borrower is initially 33 basis points better off, the total interest paid over 30 years is over $38,000 more than the variable rate option (so long as variable rates remain steady).
It’s important to look at the comparison rate, which takes into account most fees and charges, says Smith. However, there are ways to beat the banks at their game.
“If you shop around prior to the end of the fixed period, you may be able to find a much better rate than the revert rate,” he said.
Disclaimer
This article is over two years old, last updated on February 17, 2012. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.
Compare home loans in Australia
5.99%
5.90%
$3,218
Australian Credit Licence 234945
Fees & charges apply
- Promoted
- 2024 Award Winner
- Special
- Owner Occupied
- Variable
- 20% min deposit
- P&I
6.39%
6.40%
$3,342
Australian Credit Licence 233714
Fees & charges apply
- Promoted
- Cashback
- Owner Occupied
- Variable
- 20% min deposit
- P&I
6.29%
6.20%
$3,311
Australian Credit Licence 234945
Fees & charges apply
- Promoted
- Special
- Investor
- Variable
- 20% min deposit
- P&I
6.84%
7.16%
$3,611
Australian Credit Licence 233714
Fees & charges apply
- Promoted
- Owner Occupied
- Variable
- 5% min deposit
- P&I
7.09%
7.09%
$3,563
Australian Credit Licence 234527
Fees & charges apply
- Promoted
- Cashback
- Owner Occupied
- Variable
- 10% min deposit
- P&I
6.95%
7.15%
$2,896
Australian Credit Licence 234945
Fees & charges apply
- Promoted
- Investor
- Variable
- 20% min deposit
- Interest Only
7.20%
6.90%
$3,000
Australian Credit Licence 234945
Fees & charges apply
- Promoted
- Investor
- Variable
- 40% min deposit
- Interest Only
6.49%
7.25%
$2,704
Australian Credit Licence 234527
Fees & charges apply
- Promoted
- Cashback
- Owner Occupied
- Fixed 2 years
- 10% min deposit
- Interest Only
7.24%
7.56%
$3,183
Australian Credit Licence 233714
Fees & charges apply
- Promoted
- Investor
- Variable
- 30% min deposit
- Interest Only
7.46%
7.27%
$3,108
Australian Credit Licence 230686
Fees & charges apply
Tailored Home Loan
- Owner Occupied
- Variable
- 10% min deposit
- Interest Only
7.84%
7.84%
$3,806
Australian Credit Licence 234527
Fees & charges apply
Standard Variable Investment Loan
- Cashback
- Investor
- Variable
- 20% min deposit
- P&I
9.38%
9.52%
$4,327
Australian Credit Licence 234945
Fees & charges apply
Investment Standard Variable Rate Home Loan
- Investor
- Variable
- 5% min deposit
- P&I
Product database updated 28 Dec, 2024
Fact Checked
Promoted home loans
Variable Rate Home Loan LVR < 80%
Real Time Rating™
- 2024 Award Winner
- Special
- Owner Occupied
- Variable
Interest rate p.a.
5.99%
Comparison rate* p.a.
5.90%
Australian Credit Licence 234945
Fees & charges apply
Basic Home Loan
Real Time Rating™
- Cashback
- Owner Occupied
- Variable
- 20% min deposit
Interest rate p.a.
6.39%
Comparison rate* p.a.
6.40%
Australian Credit Licence 233714
Fees & charges apply
Variable Rate Home Loan LVR < 80%
Real Time Rating™
- Special
- Investor
- Variable
- 20% min deposit
Interest rate p.a.
6.29%
Comparison rate* p.a.
6.20%
Australian Credit Licence 234945
Fees & charges apply
Basic Variable Rate (Flexi First Option) Home Loan
Real Time Rating™
- Owner Occupied
- Variable
- 5% min deposit
- P&I
Interest rate p.a.
6.84%
Comparison rate* p.a.
7.16%
Australian Credit Licence 233714
Fees & charges apply
Product data updated on 28 Dec 2024
