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ISCOVER
Staff Reporter
Australians who fix their home loan rate for two years are betting against four rate cuts in the next 12 months, according to RateCity.
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Research conducted by the company found that if variable rates drop by 0.50 per cent in the first 12 months with no changes in the second 12 months, borrowers who lock in a two-year fixed rate of 4.99 per cent will be over $1,500 better off.
The study was based on the average of the four major banks’ lowest advertised two-year fixed rates of 4.99 per cent compared to their lowest advertised variable rates of 5.67 per cent, for a $300,000 home loan with a 30-year loan term.
RateCity’s chief executive, Alex Parsons, 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 per cent – including all four major banks. Compared to variable, only one lender is currently offering a home loan under 5 per cent – State Custodians at 4.99 percent,” he said.
“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 on the assumption that any [Reserve Bank] 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.”
