RateCity shows you an opportunity that could save you money by fixing your mortgage within a few years.
July 30, 2010
The big question most borrowers shopping for a mortgage ask themselves is whether to fix or choose a variable rate? If you are in the market for a home loan, there may be a window of opportunity to fix which can potentially save you money at the same time.
New research by RateCity found that the average three-year fixed rate home loans from more than 100 lenders has decreased by 0.14 percent since June to 7.64 percent (as at July 15), while the average standard variable rate has increased to 7.06 percent, leaving a gap of 0.58 percent between the two rates.
The research also found that other average fixed rates have also declined since June, including four-year five-year and two-year rates.
Volatile market could bring savings to fixed mortgages
Rates for fixed mortgages began declining towards the end of 2008 when the variable rates started to fall.
“Many borrowers flocked to variable rate home loans because there were dramatic differences in rates,” says RateCity’s CEO Damian Smith.
“Fixed mortgages generally offer higher rates than variable home loans so lenders may be trying to win back that market share of fixed mortgages because they are better value to them.”
The lending market is somewhat volatile due to the GFC and the recent economic crisis in Europe, and as a possible result some fixed interest rates have fallen, which could mean significant savings for home owners.
If you are in the market for a home loan here some pointers to consider on fixing:
- If you think interest rates will rise, you could be better off by fixing your mortgage now. For instance, if you have a $300,000 mortgage and have the average three-year fixed rate of 7.64 percent, even if the average standard variable rate of 7.06 percent increases by 1 percent over the next two years, you could save $1200 over the three years by locking in a three-year fixed rate.
- Fixed rates are generally higher than variable because you are paying for the security of a stable rate and therefore consistent repayments for the fixed period. When the gap between fixed and variable rates drops, it means it won’t cost you much more to fix than to opt for variable.
- Shop online and compare home loans. Work out what features you need and compare fixed with variable deals to see which option is most likely to save you in the long-term.