Is it the right time to fix your home loan?



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The mere mention of the words ‘rate rise’ sends many homeowners into a spin, as they debate the long-term financial benefits of fixing their rate compared to riding out the variable rate rollercoaster. But is now the right time to fix your home loan?

Damian Smith, chief executive of RateCity, says fixed rates are very attractive now. So if you’re worried about rising rates, a fixed-rate could be worth considering.

“Some lenders have announced rate drops to their three-year fixed rates, including ANZ‘s three-year fixed home loan package by 15 basis points to 5.99 percent,” he said.

With three-year fixed rates available below the 6 percent mark, it’s little surprise that fixed-rate home loans are attracting borrowers in record numbers. New figures from Australian Bureau of Statistics (ABS) and analysed by RateCity show there were almost 6000 fixed home loans taken out in December 2011, which is almost 12 percent of all home loans financed. We haven’t seen this large a proportion of fixed home loans since June 2008, according to Smith.

“The major 4 banks’ (ANZ, Commonwealth Bank, NAB and Westpac) average three-year fixed rate (at the time of writing) is 6.38 percent; which hasn’t been this low since June 2009,” he said. “It’s also unusual to see fixed rates lower than variable rates. When the major banks offered three-year rates this low in June 2009, their standard variable rates were lower still.

“But to get the best value out of your home loan you must remember to compare deals before your fixed period ends otherwise you might be worse off.”

Take, for example, a $300,000 home loan fixed for three years at a rate of 5.94 percent (reverting to 7.40 percent following the fixed period, at the time of writing) with Holiday Coast Credit Union. By comparison, one of the best variable rate home loans available on the market (at the time of writing) is with IMB at 6.27 percent.

While the fixed-rate mortgage option appears cheaper, because the borrower is initially 33 basis points better off, the total interest paid over 30 years is over $38,000 more than the variable rate option (so long as variable rates remain steady).

It’s important to look at the comparison rate, which takes into account most fees and charges, says Smith. However, there are ways to beat the banks at their game.

“If you shop around prior to the end of the fixed period, you may be able to find a much better rate than the revert rate,” he said.

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