Wafer thin fixed rates could be taking pressure off the Reserve Bank to deliver further rate cuts.
Intense competition among lenders has seen fixed rates fall to lows not previously seen by many in the home loan industry. Three-year fixed deals are especially competitive – in some cases, falling well below 5%.
It’s possible that the decision by some lenders to lower fixed rates has taken pressure off the Reserve Bank of Australia (RBA) to deliver further rate cuts of its own. This has prompted many observers to believe we could be approaching the end of the current interest rate cycle, and from here rates may go up again.
Fixed rates offer valuable benefits
Today’s fixed rates are compelling, however it is important to consider how well a fixed rate loan fits in with personal goals.
On the positive side, fixing offers protection against future rate hikes, and this brings certainty to household budgets. That said, fixed rate home loans may not offer the same flexibility or breadth of features as a variable rate loan provides. Notably, many fixed rate loans do not allow additional repayments though some lenders, permit up to $30,000 in extra repayments over the fixed term.
Match a fixed term to personal plans
It is also important to select a fixed term with care as break fees can apply if you bail out of the loan before the fixed term ends. As a guide, it could be unwise to lock into a 3-year fixed rate term if you plan to upgrade to a new home in the next two years. Note too, at some stage the loan will revert to a variable rate, and it makes good financial sense to check out a lender’s track record in this area. There’s not much point saving on a competitive fixed rate for a few years if you’ll be left paying an overpriced variable rate for the remainder of your loan term.
To learn more about fixing your home loan rate, call ME Bank on 13 15 63 or visit mebank.com.au/homeloans.