With fixed-rate mortgages at historic lows, is it time to fix?
Fixed five-year mortgage rates have dropped to as low as 3.19 per cent – but brokers are cautioning borrowers to look beyond the numbers.
Following the Reserve Bank of Australia’s (RBA) rate cuts, lenders slashed interest rates on more than 1000 home loan products in July, and cut into fixed-rate mortgages the hardest.
And there could be more to come.
That’s because the funding costs for fixed-rate mortgages have been falling since January 2019, producing plenty of good deals, according to Canstar executive Steve Mickenbecker.
Consequently, lenders’ fixed-rate cuts have outstripped variable-rate reductions since the turn of the year – with cuts to 192 fixed-rate loans averaging 0.44 per cent last week, and cuts to 138 variable-rate loans averaging 0.19 per cent.
Interest rates on fixed home loans are still often higher than those on variable home loans, but Mr Mickenbecker said now could be a good time to switch, as UBank, for example, was offering to fix interest rates at 3.19 per cent for five years, and other lenders were offering similarly competitive rates.
“I’ve never seen a five-year rate as low as 3.19 per cent,” said Mr Mickenbecker.
“That takes a lot of the worry out of the whole mortgage repayment equation.”
Brokers admit the low fixed rates are “very appealing”. But they’re telling borrowers they’re not the be-all and end-all, either.
For example, most fixed-rate loans come with restrictions on additional repayments, which prolong the length of the mortgage and, therefore, increase the total interest paid over the length of the loan.
The lion’s share of fixed-rate loans don’t offer a redraw facility. And the lowest rates aren’t always available to customers with higher loan-to-value ratios.
“It’s really a question of what’s most important to you – always feeling like you’ve got the best rate, or just being able to plan out your repayments,” Clint Howen, founder of online home loan service Hero Broker said,
“The main reason people go fixed is because they want to know what they are going to be paying back, so that they can budget.”
With many market economists tipping two more rates cuts in November and February, it’s likely that variable rates will drop even lower in the coming months – even if most lenders don’t pass on the full benefits of those cuts to borrowers.
But Mr Howen said “the worst-case scenario” if you fixed now was “potentially missing out on 1 per cent, which means it’s probably the best time to look at a fixed rate”.
“Whatever works for you is the best option,” Mr Howen added.
“Some people just want peace of mind… but whatever the fixed rates are doing is an insight into what the banks think will happen.
“So they’re trying to offer you a good deal for a reason.”
Mr Howen said trying to fix your mortgage when rates had hit their trough was a bit like “betting against the house”. And fellow broker and CEO of The Property Education Company Louise Lucas agreed.
“It’s the ultimate dilemma – because you know the banks usually win with fixed rates – that’s pretty well guaranteed,” Ms Lucas said.
“But they are so low at the moment, they are very appealing – because if you can lock in those rates for three or five years, and give yourself that surety of repayment, it makes you feel a lot more confident going forward.”