Home loan borrowers urged to hold off fixing
HOME loan interest rates could be leaving many borrowers paying too much. But there are reasons why it’s not working locking in a fixed rate.
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HOME loan interest rates are ranging far and wide and it could be leaving many borrowers paying much more than is needed.
On a standard $300,000 30-year home loan, customers may find they are wasting as much as $400 every month by paying the highest variable rate on the market rather than snaring rock-bottom rates on offer.
New analysis by financial comparison website Mozo found the lowest variable rate on this standard loan is just 3.35 per cent compared to the highest at 5.64 per cent — a difference of 2.21 per cent.
This makes monthly repayments at the cheapest end $1322 per month compared to $1730 at the highest end.
The Reserve Bank board kept the cash rate on hold this month at 1.5 per cent and HSBC chief economist Paul Bloxham isn’t expecting any rates in 2017.
Inflation figures released last week show the consumer price index rose by 0.7 per cent in the September quarter, lifting the annual inflation rate from 1 per cent to 1.3 per cent and reducing the likelihood of a rate cut tomorrow.
Mozo spokeswoman Kirsty Lamont says there’s no need for borrowers to rush and lock in their interest rates.
“As long as the cash rate continues to head down, borrowers are probably better off making the most of a competitive variable rate,’’ she says.
“The ideal time for borrowers to consider locking in a longer term fixed rate is when rates are showing signs they are levelling out or about to start increasing.
“Average 1 and 3 year fixed home loan rates are currently well under the average variable rate of 4.37 per cent, but averages don’t always tell the whole story.”
The cash rate began its downward spiral in November 2011, dropping from 4.75 per cent with 12 cuts bringing it down to 1.5 per cent.
Latest data also shows the average one and three-year fixed rates sit at 4.13 per cent and 3.96 per cent, and borrowers will find these deals are cheaper than the average variable rate of 4.37 per cent.
One of the most competitive lenders on the market, Newcastle Permanent, continues to offer some of the cheapest mortgage deals with one and two-year fixed rates at just 3.69 per cent.
But the lender’s chief executive officer, Terry Millett, says borrowers need to weigh up how much they value “certainty over uncertainty” before locking in a deal.
“You need to be aware that you can’t make significant repayments above your contractual repayments on a fixed rate loans,’’ he says.
“Nearly 90 per cent of our customers are in front of their loans by 10 months.”
Originally published as Home loan borrowers urged to hold off fixing
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