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Aussies play mortgage waiting game as analysts predict further rate drop

3 min read
1 Aug 2015

The number of Aussies choosing fixed rate mortgages has dropped almost two percent year-on-year as homeowners take advantage of the lowest variable interest rates offered by lenders in 40 years . Data sourced by comparethemarket.com.au from AFG, Australia’s largest mortgage broking service provider, reveals that in June 2014, 17.2 per cent of Australians had fixed rate home loans; this has fallen to 15.4 per cent by June, 2015.

Abigail Koch, consumer advocate and comparethemarket.com.au spokesperson, says, “Given the cash rate is sitting at a 60-year low , you would expect the number of fixed rate mortgages to increase, however, history shows us that Australians usually wait until the rate ticks up again before making the move to fix their rates.”

Comparethemarket.com.au offers data on home loans from 31 Australian lenders including AFG, which saw a record-breaking 34.5 per cent increase in mortgage volume in June this year, compared to June 2014. Of first-home buyers, 14.2 per cent opted for a fixed rate mortgage in June, compared to 15.2 per cent in May. Meanwhile, 76 per cent of new borrowers chose a standard or basic variable home loan.

“The four out of five Australians who currently have variable rate loans must be enjoying these record lows,” Abigail says. “If you took out a $300,000, 30-year home loan on a standard variable rate of 4.19 per cent, your monthly repayments would be $1,465. If your variable home loan rate falls to 4 per cent, for example, monthly repayments would drop to $1,432.”

Mark Hewitt, General Manager – Sales and Operations, AFG, says, “Many analysts predict a further rate cut by the first quarter of next year and with most lenders having priced this into their fixed rates they may be a safe option for people looking for some certainty.”

Abigail adds, “It is hard to find that ‘sweet spot’ to move to a fixed rate on your home loan. You need to work out what is right for your personal circumstances. The two main advantages of fixing your rate are that it makes managing your finances easier – important if you’re on a tight budget – and the second is that you are insulated from interest rate rises for the length of your fixed interest rate period which is usually either one, three or five years.”

Disadvantages of fixing your rate
• Repayments will stay the same, even if interest rates go down.
• You may be charged if you make additional payments on your loan and they are generally not accessible to redraw during the fixed period.
• There may be penalties if you need to exit the loan before the end of the fixed period.

Pros and cons of variable rates

• As interest rates go down, so do your loan repayments.
• Standard variable loans will allow you to make loan repayments outside of your normal schedule at no extra cost.

• As interest rates go up, so do your loan repayments.
• The increased amount of repayments (if the interest rates rise) could affect your budget so make sure you account for potential spikes when deciding how much you want to borrow.

Comparethemarket.com.au brings you some great home loan deals:

Fixed loans
• BOQ – 3 Year Fixed Home Loan <80% LVR $500k + Special
Interest rate – 3.99%
Comparison rate – 5.17%*

• AFG Home Loans – Edge Plus 2 Year Fixed Combo $200k+ (<80% LVR) (<50% Fixed)
Interest rate – 4.04%
Comparison rate – 4.58%*

Variable rate loans
• AMP Professional Variable $750k + <80% LVR Owner Occupied Special
Interest rate – 4.12%
Comparison rate – 4.12%*

• ING Direct Orange Advantage $500k + (<80% LVR) Special
Interest rate – 4.13%
Comparison rate – 4.33%*

*Comparison rate is calculated based on a loan amount of $150,000 over 25 years with monthly payments. WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

[1] http://www.realestate.com.au/blog/rba-rates-february-2015/

[1] http://www.smh.com.au/business/the-economy/reserve-bank-of-australia-cuts-official-cash-rate-to-record-low-2-at-may-meeting-20150505-ggueak.html

[1] Comparethemarket.com.au home loan calculator. Calculations are provided by VisionAbacus Pty Ltd.

[1] http://www.ora-group.com.au/is-it-time-to-fix-your-interest-rate/

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