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The ship has almost sailed for fixed home loans

March 2, 2011

If you're deciding whether to fix your home loan or go variable, the choice may have been made for you, with fixed interest rates on the rise.

There has been a lot of movement of interest rates recently despite not much change to the Reserve Bank of Australia's official cash rate. Fixed home loans are looking to be on their way up and many borrowers probably missed the boat on locking in a great fixed interest rate on their home loan.

RateCity recorded 64 percent of the home loans that moved their interest rates in the first two weeks of February were increases to fixed home loans. These rates moved by up to 0.35 percentage points, which is a significant rise when you think about the most common fixed rate is for three years.

ANZ heralded one of the best three-year fixed rates in the market for about three months from November 2010, with a rate of 7.34 percent. The major lender bumped up their rate twice in the first fortnight of February by a total of 24 basis points to 7.34 percent.

In just two weeks, the average three-year fixed rate moved slightly by 0.01 percentage points to 7.46 percent. But there are still good fixed rate deals on the market. For instance, you can find a three-year fixed rate from 7.15 percent by Heritage Building Society.

But if you compare this to the average basic variable rate of 7.13 percent, RateCity calculated that the low three-year fixed rate would have to increase by 50 basis points in the next two years to be worth fixing at 7.15 percent - and you could save yourself $2500 in the three years.

Fixed and variable rates can be confusing. Just remember that when you fix your loan you are paying a premium to have your loan repayments secure for a certain period of time - usually up to five years. Don't expect to save money on fixing your loan compared to going variable but the best solution to save on your mortgage is to make extra repayments to reduce your balance.

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