Banks are now coming out with very competitive fixed rate mortgages – amongst the best deals we have seen in recent years.
Loan Market National Operations and Risk Manager Ivan Karamatic said the fixed rates market had become highly competitive with several lenders offering significant savings.
Mr Karamatic said home owners concerned by the possibility of the Reserve Bank of Australia (RBA) raising the official cash rate from its current level of 4.5 per cent had a number of appealing fixed rate options.
“A number of fixed rate offers are even slightly better than the standard variable rates. Therefore if you believe that the future direction of interest rates is up – fixing some or all of the mortgage may be a great idea.
“In some instances the difference between a three year fixed rate and that of a standard variable is as little as 0.38 per cent.
“That’s only one or two RBA interest rate hikes away from mortgage holders being potentially better off with the fixed package.”
Mr Karamatic said recent statistics show that an increasing number of people see paying a little more today as a form of insurance against potential future increases.
For some home owners a fixed rate could offer a sense of security that is critical.
Mr Karamatic said people considering fixing their interest rates should be aware that they offer limited flexibility and potentially high exit costs for opting out of the loan.
“Many consumers are unaware that the variable rates move somewhat differently to fixed rates and by the time variable rates have bottomed they have missed the best opportunity to fix,” he said.
“While variable rates are influenced primarily by the Reserve Bank of Australia, fixed rates are different. Apart from official cash rates, their pricing is also driven by those who invest in the fixed rate wholesale markets.
“Variable rates are still lower than most fixed rates so it is important to consider your financial situation and motivation for fixing to determine if a fixed rate home loan is appropriate for your circumstances.