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Fixed interest rates are falling - what’s your next mortgage move?
- Apr 22, 2024
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Fixed interest rates are falling - what’s your next mortgage move?
Some fixed rates are now cheaper than variable rates if you’re looking to refinance your home loan.
Among all the balloon hearts and flower baskets this month, our home loan expert, Anton Stevenson, noticed something happening across the 50+ lenders on our home loan panel:
Some fixed rates are now cheaper than variable rates if you’re looking to refinance your home loan.
Among all the balloon hearts and flower baskets this month, our home loan expert, Anton Stevenson, noticed something happening across the 50+ lenders on our home loan panel:
The average fixed rate home loan in our panel dropped in February, to 6.09%.
“The biggest cuts are in the 2 and 3 year fixed interest rate products,” Anton explains.
Several lenders, including Macquarie, AMP Bank, Bendigo and Adelaide Bank, and the Bank of Queensland, actually cut fixed rates across December and January. These reductions range from 0.1 percentage points to 0.76 percentage points.
“aAthe average cut made to fixed term interest rates on offer this month is 0.2%,” Anton says. “This may not sound like a lot, but the average home loan is around $624,000. Every bit helps.”
The Australian Bureau of Statistics notes the average mortgage across the country sits at $624,000. So, on this average mortgage of $624,000 at 6.09% (the average fixed rate across out 50+ lender panel), monthly repayments are $3,777.
With a 0.2% difference? $3,697 per month, with a saving of almost $1,000 per year - and remember, that’s the average across some 50 lenders.
Are the banks feeling generous again?
I like your optimism, but - while we’re discussing averages- let’s agree that the generosity of your average lender is unlikely.
- Inflation is finally falling, which should start to help with overall cost-of-living challenges as well as mortgage costs.
- Lower inflation means there’s less pressure on the Reserve Bank to raise interest rates (although this doesn’t mean they won’t…)
- Most economists seem to think we’re still a way away from the RBA actually cutting the cash rate but it’s now being talked of as a possibility this year.
- A more stable cash rate is good, though. Lenders have a better idea of how much they’ll earn from mortgages so that means they may price a little more competitively.
- A bit more certainty also means banks have a bit more confidence in offering lower fixed rate loans - which is exactly what’s happened.
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Be aware: not all lenders are quite as generous. AMP Bank, for example, recently increased some of their variable home loan rates - and were the first to lift rates above the RBA’s 0.25% increase last November.*
Commonwealth Bank’s economist’s Stephen Wu has noted that we’re taking out far fewer fixed rate loans since the RBA started hiking rates in May 2022, with most mortgage holders opting for variable rate loans.
- This means the lender’s loan books have a lot more variable loans and are underweight in fixed interest rate loans. There’s nothing we like better than a reliable income stream - and lenders are no different.
- Not only that, but their loan books are supposed to have a good mix of variable rate loans and fixed interest rate loans. The more even the mix, the more stable the lender.
A fixed rate borrower is unlikely to refinance within the first few years, due to the break fees.
To a lender, these borrowers are more attractive than ever, so just like any other attraction (ah Valentine’s Day…), lenders are doing their best to attract borrowers who want fixed interest rate home loans.
They’re getting more competitive about it too.
Cashback offers are back:
According to Anton, the return of cashback offers to attract refinancers is always a good indicator that lenders are loan-hungry - and that’s what he’s seeing on the panel again, after most of these offers were pulled away from home loan applicants in October last year.
“We have a lender on panel offering $2,000 cashback for refinancing both investor loans and owner-occupier loans. Their lowest fixed rate is 5.79% - and this is just one example,” he says.
Basically, lenders are adjusting their fixed rates in anticipation of future Reserve Bank of Australia (RBA) cuts to the cash rate.
“There is good reason to believe that current conditions will not persevere,” says Garry Rich from the ACCC.
“There is good reason to believe that current conditions will not persevere,” says Garry Rich from the ACCC.
The ACCC also wants switching lenders to be easier for you, and there’ll be more work around this from them this year:
“We want the ability for a confident consumer to make a choice and get a better deal, and for this to be seamless and not sticky, so people can decide to switch,” says ACCC Chairwoman, Ms Cass-Gottlieb.
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The message is clear: Mortgage holders have an opportunity to regain some of the ground lost over the past one to two years - but some borrowers are still reeling from the shock of shifting from interest rates of 2%, to a revert rate of over 6.0%.
The bottom line:
- Many (but not all) lenders have cut their fixed interest rate home loans. Our home loan expert is seeing this across our panel of 50+ lenders.
- If you’re considering refinancing, it’s worth shopping around.
- Lenders are courting borrowers more now than they have in months - including the reappearance of cashback offers.
If your fixed rate home loan rate is ending soon, or you’ve just been handed your ugly revert rate, talk to a broker about your options as soon as you can.
General Advice Warning: This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is appropriate for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.
All information above has been provided by the author.
All information above has been provided by the author.
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This article originally appeared on Compare Club - Expert Analysis - Loans & Credits and has been published here with permission.
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