 Fixed or variable?
Home owners across the country are all asking the same thing: Should I fix my rate?
With interest rates on the way up, many borrowers are rushing out to fix their home loan rate but leading brokers say a variable mortgage is still cheaper. Since the Reserve Bank of Australia increased the official cash rate on October 6, followed by mortgage rate hikes from the big banks, interest in fixed rate loans has risen.
While, fixing your mortgage rate may seem the sensible thing to do while rates are set to increase, experts believe the variable rate mortgage are still better in the long run. However, most people are realising that fixed rates are considerably higher than variable rates and are deciding to stay put on a variable mortgage.
"Given where fixed rates are at the moment, we have estimated that variable rates would have to increase by around three per cent over the next two years for a fixed rate to be worth considering," Loan Market Group chief operating officer Dean Ruston said.
Fixed rates on offer from the big banks are around 7.5 per cent for the next three years or as much as eight per cent for five years. By contrast, variable rates are around 5 or 6 per cent.
Financial markets are tipping many more rates rises in the coming 12 months but say increases will be small and steady. Variable rates would need to rise by another 2 percentage points to match current fixed rates. Most economists tip another 0.25 per cent rate rise in November.
When the RBA moved to raise the official cash rate at their October policy meeting, all of the major lenders followed and passed on the full increase to borrowers.
ANZ has a standard variable rate mortgage of 6.06 per cent.
St George is offering 6.04 per cent.
National Australia Bank increased its standard variable rates by 25 basis points to 5.99 per cent.
Westpac is currently offering 6.06 per cent.
Commonwealth Bank has a standard variable rate of 5.99 per cent.
This increase of 25 basis points adds about $40 a month on a $250,000 mortgage over 25 years.
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