Australians who fix their home loan for two years are betting against four rate cuts in the next 12 months, according to a new study by Australia’s leading financial comparison website RateCity.com.au
In fact, even if variable rates dropped by 0.50 percentage points in the first 12 months (at six months apart) with no changes in the second 12 months, borrowers who lock in a two-year fixed rate of 4.99 percent would be over $1500 better off.
The study was based on the average of the major four banks’ lowest advertised two-year fixed rates of 4.99 percent compared to their lowest advertised variable rates of 5.67 percent, for a $300,000 home loan with a 30-year loan term.
Alex Parsons, RateCity’s CEO, said the findings revealed why so many borrowers are currently choosing to fix their home loan.
“It’s unusual to see so many fixed home loans offering cheaper rates than variable. In fact, out of more than 100 lenders in RateCity’s database, 21 lenders are now offering two-year fixed rate home loans under 5 percent – including all four major banks. Compared to variable, only one lender is currently offering a home loan under 5 percent – State Custodians at 4.99 percent.
“We discovered that it would take at least three 25 basis point cuts within the first six months or four 25 basis point cuts within the first 12 months for borrowers to be better off with a variable rate. Of course this is off the assumption that any RBA changes are passed on in full immediately which has not recently been the case.
“It’s no wonder we’ve seen more borrowers locking in their home loans, or a good chunk of it, and we expect to see borrowers continuing to compare more often to ensure they are getting the best deal and ultimately saving money,” said Mr Parsons.
The latest figures from the Australian Bureau of Statistics , analysed by RateCity, found a 6 percent increase in the number of fixed home loans financed in January 2013 compared to the same month last year. This was despite 1 percent – or 308 – fewer total home loans financed during the same period.
RateCity also found a rise in the proportion of borrowers choosing to fix their home loan in January, with 12.2 percent fixed compared to 11.4 percent fixing in January 2013.
“If you’re considering a fixed home loan, there are some great opportunities out there to fix at a good value rate under 5%. For instance, the lowest two-year fixed rate in RateCity’s database is 4.84 percent by AMP Bank and three-year fixed rates are starting at 4.99 percent by ME Bank,” said Mr Parsons.
“Borrowers need to remember there are several factors that can impact how much you can save or lose by fixing your home loan such as timing of when rate cuts occur, if lenders pass on the full cuts and if you’ve locked in a good value deal. So to make the most of the home loan market, make sure you use RateCity to compare what lenders are offering and save.”