 Fixed rate debate
Fixed rate home loans are still unappealing to many home owners, despite rising interest rates. Demand for the fixed rate products fell to 4.56 per cent of all new loans approved in September, compared with 6.98 per cent in August.
Mortgage Choice data shows the downward trend. Borrowers seem happy to risk higher variable rates in the future instead of paying the extra fees to fix rates on their mortgage.
"Demand for fixed rates hasn't reached such a low level since April this year," Mortgage Choice corporate affairs manager Kristy Sheppard said.
"Given the vast majority of fixed loans are priced between 100 and 250 basis points above variable loans, the result is not surprising, despite most borrowers being aware of imminent rate rises."
Despite the Reserve Bank of Australia increasing the official rates last week, and banks all following with home loan rate rises, fixed rate loans still appear to be less attractive than variable rates.
When last week the RBA raised the cash rate to 3.25 per cent, from three per cent, all of the Big Four banks, and some smaller ones increased home loan rates by 25 basis points. And financial markets are predicting further rate rises in November, followed by more small increases next year. Some forecast home loan rates could reach close to 8 per cent by the end of 2010.
Fixed rate home loans allow borrowers the opportunity to secure a rate now, and lock in that rate for a period of time, usually one to five years. This offers protection against rising rates, if you can lock in a competitive rate now. However, there may be extra fees to have a fixed rate and many home owners may be willing to stick to their variable rates a little longer, while mortgage interest rates are still relatively low.
Fixed rate loan also offer less features, and this could be another deciding factor in choosing a variable loan instead.
Join the discussion on Fixed Interest Rate Home Loans
|