Fixed-rate mortgage frenzy: what borrowers need to know

With banks lifting fixed mortgage rates “crazily fast”, a change in strategy can save borrowers big dollars.

Fast-rising fixed interest rates on mortgages have prompted a warning for borrowers to check their home loans, revisit refinancing plans and potentially make quick changes.

Westpac this week lifted its fixed rates for the third time in a month, many other lenders have lifted them twice, and mortgage specialists say there are more to come.

Financia managing director Angelo Benedetti says fixed rates are rising “crazily fast” and have caught many people off-guard, and some borrowers may be better off with a variable rate home loan.

Variable rates generally track the Reserve Bank of Australia’s official cash rate, and RBA governor Philip Lowe reiterated this week that the “central scenario for the economy” was the rate staying at its record low level until 2024.

“Some of the fixed rates on offer are pretty average, given the rapid rises, while some banks still have variable rates under 2 per cent and they seem to be better value,” Benedetti says.

“The consensus is variable rates won’t go up for two years, so if you fix you are paying a big premium for a long time,” he says.

Westpac has joined the other three major banks to lift five-year fixed rates above 3 per cent, while all four have fixed rates for four years of at least 2.89 per cent.

RateCity’s Sally Tindall says people looking to fix could consider paying a rate lock fee.

Benedetti says people set on a fixed-rate loan could consider a rate lock through their lender, which generally costs between $375 and $750 and protects them from future rises before their loan is finalised.

RateCity research director Sally Tindall agrees, noting that 16 lenders have lifted fixed rates at least twice in the last month and the increases are bigger each time.

“The banks have decided it’s not sustainable to keep fixed rates at ultra-low levels,” she says.

“In this environment where banks are hiking multiple times a month, customers would do well to consider paying a rate lock fee, particularly when some banks are struggling to process loans quickly.”

Canstar group executive of financial services Steve Mickenbecker says “betting is firming” on a Reserve Bank rate rise in early 2023, although this will depend on consumer price inflation and wages growth.

“We haven’t seen the last of fixed rate increases and the bargains are fast disappearing,” he says.

“The best deals are now to be found in variable and one-year fixed rates and Canstar still lists 172 rates below 2 per cent, but the number is diminishing.”