 Fixed or variable home loan?
Currently the official cash interest rate is at it's lowest level for over four decades and may fall again, home loan rates have fallen considerably, and home owners are now faced with the age old dilemma - to fix or not to fix their mortgage rate.
The choice between fixing your rate now while they are low, or sticking to a variable rate and hoping for further savings in one faced by many home owners. The case for changing to a fixed rate is growing stronger and louder. But with fixed rates now at record lows, it appears that the clear majority of borrowers are anticipating further falls in official cash rates, says JPMorgan bank analyst Scott Manning.
Recent figures have shown that just 2 per cent of all new home loan approvals were for fixed rates, considerably lower than the 10 year average of 11 per cent.
And with some economists predicting the official rate could fall from it's current 3 per cent to 2 per cent over the next year, some experts are warning against locking a rate in now. ANZ chief executive Mike Smith believes as much, recently saying he "wouldn't be in hurry" to fix interest rates on mortgages.
Homeowners are not the only ones looking ahead, banks are also looking at the direction of interest rates in the long-term.
Which explains why fixed rates often are the first loan products to change.
Although the banks do not have to, nor do they move to change home loan rates in line with the Reserve Bank of Australia moving the cash rate, most of the recent rate cuts have been passed on to home owners, with the exception of the last 25 basis point rate cut, where only three banks passed on 10 basis point cuts.
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