Last week, the RBA decided to keep the cash rate on hold at the historic low of 1.5 per cent. With only one more meeting left this year and no meeting held in January, economists predict that the cash rate is likely to remain steady for at least a few months to come.
This prediction, coupled with the fact that the current low rate doesn’t give the RBA much wiggle room to go lower, suggests that we may see rates flatline for the time being.
For the savvy borrower who keeps up to date with the news, the obvious questions may be whether or not to fix a home loan rate now to enjoy some stability in repayment size at such a low rate.
While only you can be the judge of when the right time to fix is, here are some indicators that now might not be the worst choice;
Fixed rates are almost on par with variable rates
The lowest variable home loan rate on the market is currently offered by Reduce Home Loans and sits at 3.35 per cent advertised and comparison rate. This is closely followed by rates from Homestar Finance, Mortgage House and Loans.com.au.
Fixed rates on the other hand start from a 3.59 per cent advertised rate offered by QT Mutual Bank and Greater Bank but beware, the comparison rates of these loans are much higher at 4.48 per cent and 4.55 per cent respectively.
This higher comparison rate would account for the fees and charges associated with locking in a fixed home loan so it would be wise to determine exactly what these may be before signing up for a new mortgage.
Also take into account that fixed loans may not offer all the features of a variable loan such as an offset account and the ability to make unlimited extra repayments. These features can assist in reducing the amount of interest paid over the life of the loan and switching to a fixed loan that doesn’t provide them may therefore not be the best choice for all types of borrowers.
The banks haven’t been passing on full cuts
Following the past two rate cuts, we have seen that the banks are not willing to pass on the RBA cuts to customers in full. Both owner occupier and investor borrowers received on average about 68 per cent of the 25 basis point cut that happened in May 2016. Following the August cut, the same pattern was seen again with banks unwilling to pass on the full cut to borrowers but more than willing to slash savings interest rates.
For the RBA, this means that each cut would have less of a desired effect on the economy and with there being few cuts left before we reach zero, it is likely they will save them for emergency situations.
For borrowers deciding to fix, this means that you can be fairly confident that you will be locking in a good deal and that even if rates are cut further, there won’t be a guaranteed change to mortgage rates as a follow on effect.