It was always the big question for homebuyers; lock in a fixed interest rate or take a gamble and go for variable. Now amid economic uncertainty more Australians are taking the guesswork out of mortgages by fixing their rates.
RateCity research reveals the number of homebuyers choosing fixed over variable interest rates is at the highest proportion in four years.
“Fixed home loan rates have been falling since mid-last year but we haven’t seen demand increase this fast for four years because of falling variable rates,” said RateCity spokeswoman Michelle Hutchison.
There were almost 26,000 more fixed home loans written in the year to September, worth an extra $8.6 billion more than the previous year, she said.
The lowest fixed rate is from nab-backed UBank, offering a three-year fixed rate at 5.13 percent, which is 27 basis points below the cheapest variable rate. In fact, there are 50, three-year fixed home loan rates below the cheapest variable option, RateCity data shows.
Save thousands by fixing
Locking in the current average three-year fixed rate of 5.6 percent for a typical $300,000 home loan could potentially save a borrower over $3500 in three years compared to choosing the current average variable rate of 6.11 percent, assuming rates remain the same.
Fixed rates can also provide homeowners will additional financial security.
However, while fixed repayments can seem a sensible strategy when interest rates are heading north, it can prove costly, when they fall as they have in recent times.
Borrowers should also be aware of the restrictions that come with fixing, said Hutchison.
“Fixing your mortgage comes with a few catches. The main drawbacks are they they’re generally restricted to how much extra you can add to the balance and they can come with hefty break costs if you want to switch during the fixed period,” she said.
“Borrowers should be cautious about the conditions of loan contracts and make sure you compare features, rates and fees using RateCity to ensure you find a good value deal.”
Combine the benefits of fixed and variable
If you want it both ways, then a “split mortgage” allows a homeowner to fix some of the interest repayments, while maintaining some of the benefits attached to a variable rate mortgage.
Lisa Montgomery, CEO of Resi home loans, said: “Regarding splitting your loan between fixed and variable – my opinion has always been to create a balance with your loan portfolio to take advantage of the best of both worlds.” In other words, with split loans, if rates soar, the fixed component of the mortgage will be protected against the hike. On the flipside, when rates fall, the variable component enables home owners to enjoy lower loan repayments.
To help you choose a suitable mortgage, compare home loans using a site such as RateCity, which outlines the features and interest rates attached to hundreds of competitive variable, fixed and split mortgage options.