Jury’s out on fixed v variable interest loans

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October 04 2019
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The number of fixed rate home loans held by Australians has halved in the last two years, which indicates that consumers expect loan interest rates to continue falling, according to new analysis.

Comparison site Finder has found that while the total number of home loans taken out by Australians has dipped by 14 per cent since 2017, the number of fixed rate loans has dropped by 52 per cent over the same period.

With further rate reductions likely, Finder predicted that less investors will lock in rates, despite Australia’s official cash rate already sitting at record lows.

Graham Cooke, Finder’s insights manager, has commented that with more cuts possibly on the horizon way, fixed rates seem less sexy.

“Based on all the economic indicators [and] the RBA reviews – employment, inflation, housing, wages – we are likely to be in a low-rate environment for the foreseeable future,” he said.

“Unless we see huge drops in fixed loan rates, variable loans will likely stay in vogue,” Mr Cooke continued.

Fixed v Variable

The comparison site found the lowest fixed home loan rates on offer at the moment come from Mortgage House and Greater Bank; which are both offering mortgagees a 2.79 per cent fixed home loan rate.

With rates so low, Mr Cooke said customers should consider the potential benefits of swapping rates, despite the upfront costs.

“Breaking from a fixed loan can be costly; on the other hand, if you are switching to a much better rate this could save you thousands in the long run,” he commented.

At the moment, the lowest variable rates are slightly lower, with Reduce Home Loans offering customers a 2.69 per cent variable home loan.

Reduce Home Loans is one of 12 lenders to announce reductions to its variable owner-occupier rates products since Tuesday’s RBA decision.

“Just remember that variable doesn’t mean directly connected to the cash rate,” he advised.

“Your lender can raise your variable rate at any time, so stay on top of your options,” Mr Cooke added.

“With the cash rate at 0.75 per cent and potentially at 0.50 per cent in the next few months, if you decide to lock in a fixed rate, make sure you’re comparing your options and getting the best deal for you,” Mr Cooke concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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