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To fix or not to fix your home loan? David Koch weighs in

Reviewed by expert, David Koch
3 min read
11 Apr 2024
home loan variable interest rates

The tide is turning on fixed rates with a growing number of lenders announcing reduced rates for fixed term loans.

But Compare the Market Economic Director David Koch has warned borrowers who lock in a rate now could find themselves worse off if the RBA decides to reduce the cash rate later in the year.

This comes as ME Bank announced they will slash their fixed rates by as much as 0.60%* from Friday 5 April.

Some of their most attractive owner-occupied fixed rates will be as low as 5.79%.

“While these fixed rates south of 6% may seem tempting, it may be better to wait for a rate cut,” Mr Koch said.

“Fixed home loans are great for shielding you from rate rises, but they will block you from getting a rate cut.

“Generally, when we’re at the peak of the cycle – which we probably are now – fixed rate loans are a leading indicator on where the market is thinking interest rates are going to go.

“That’s because banks won’t reduce their fixed rates unless they think it’s a safe bet for them. The reality is rates could be a lot lower in four years’ time.

“History tells us it’s usually better to remain a bit flexible and consider staying on a variable rate when we’re at the peak of the cycle and rates are widely tipped to go down.

“It just depends whether you want to take a chance sitting on a higher variable or if you would rather lock in a stable rate that you think you can afford.”

All of the big four banks have forecast a rate cut this year. Commonwealth Bank is the most aggressive, predicting the equivalent of three 0.25% reductions by the end of 2024.

Compare the Market analysis shows that three rate cuts of 0.25% could reduce repayments on a $750,000 by $354 a month.

Mortgage sizeMonthly repayments with an owner occupied variable rate of 5.94%Decrease in average monthly repayments if 3 x 0.25% rate cuts were to occur (5.19%)Difference
Reserve Bank Lenders’ Interest Rates. Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 5.94%; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees.

“While fixing a rate during 2021 could have saved you thousands during the record run of rate rises, that era is likely over,” Mr Koch said.

“It could cost you more, if you were to fix your home loan interest rate and miss out on these rates cuts – which are hopefully coming by the end of this year.

“It’s a personal decision, but be wary and consider carefully before locking in a rate that could cost you in the long-run”.

Mr Koch encouraged homeowners to compare their interest rate and make sure they’re on a competitive deal.

* ME Bank’s Owner Occupied LVR 90% – 5 year fixed will drop from 6.79% to 6.19% (0.60%) from Friday, 5 April 2024

For more information, please contact:  

Natasha Innes | 0416 705 514 | [email protected]

Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, travel and personal finance products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.

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avatar of author: Natasha Innes

Written by Natasha Innes

Natasha Innes is a Media and Communications Advisor at Compare The Market. Natasha joins us after working as a journalist at the Courier Mail and Seven News. She graduated from Queensland University of Technology with a dual degree in Business and Journalism majoring in Public Relations.

[email protected]

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