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Sharp fixed rate deals spur home loan borrowers to lock in their interest rates

Sharp fixed rate deals spur home loan borrowers to lock in their interest rates

Home loan borrowers are scrambling to lock in their interest rates, as fixed rates continue to tumble.

A quarter of mortgage holders have fixed their interest rate this year, including those who have switched to a split loan, a RateCity survey of 1,009 Australians found.

A further 24 per cent of those with a mortgage are considering fixing their interest rates, while almost 11 per cent were already on a fixed rate before this year.

Fixed rate mortgage applications make up some 40 per cent of Commonwealth Bank’s new home lending, a spokesperson from the bank told RateCity.

“We’ve seen an increase in fixed (rate mortgage applications), with customers taking advantage of historically low interest rates,” he said.

And a third of Mortgage Choice’s borrowers in August fixed part or all of their home loan interest rate. This is compared with 13.7 per cent in March.

“Demand for fixed rate home loans has been steadily increasing since March of this year,” Mortgage Choice chief executive officer Susan Mitchell said.

“When you consider the extreme economic uncertainty and the sharp fixed rate pricing on offer at present, it’s completely understandable why a greater proportion of borrowers are engaging the help of their mortgage brokers to lock in a fixed rate on their home loans.”

Company
Product

Fixed Rate Home Loan

Real Time Rating™

0.00

/ 5
Interest Rate

2.07

% p.a

Fixed - 2 years

Comparison Rate*

2.65

% p.a

Repayment

$1,282

monthly

Go to site
Company
Product

Standard Variable Loan

Real Time Rating™

0.00

/ 5
Interest Rate

3.74

% p.a

Variable

Comparison Rate*

3.78

% p.a

Repayment

$935

monthly

Go to site
Company
Product

Choice Package

Real Time Rating™

0.00

/ 5
Interest Rate

4.24

% p.a

Variable

Comparison Rate*

4.26

% p.a

Repayment

$1,060

monthly

Go to site

Cashback

$2,000 cashback when you refinance a loan of $250,000 or more
Company
Product

Base Variable Rate Home Loan

Real Time Rating™

0.00

/ 5
Interest Rate

2.99

% p.a

Variable

Comparison Rate*

3.03

% p.a

Repayment

$1,421

monthly

Go to site

Cashback

$2,000 cashback when you refinance a loan of $250,000 or more
Company
Product

Simplicity Plus Loan

Real Time Rating™

0.00

/ 5
Interest Rate

2.98

% p.a

Variable

Comparison Rate*

3.02

% p.a

Repayment

$1,420

monthly

Go to site

The difference between fixed and variable rates

New customers are seeing a bigger gap than existing customers in the fixed and variable rates offered to them, as mortgage lenders race to bring more borrowers on board.

For new customers, the difference between the average variable interest rates and rates for fixed terms of up to three years is 62 basis points, the latest figures from the Reserve Bank of Australia (RBA) showed. 

But the gap was much smaller for existing customers, who are only seeing a 6 basis point difference between sub-three year fixed rates and variable rates.

New customersExisting customers
Fixed (up to 3yr terms)2.30%3.17%
Variable2.92%3.23%
Difference0.62%0.06%

Source: RBA.

Fixed rate borrowers the biggest winners from post-COVID interest rate declines

While interest rates have generally been falling across the board during COVID-19, fixed rates have shown a more significant drop than variable rates.

New fixed-rate borrowers are typically securing the best deals from their mortgage lenders. The average interest rate for new owner-occupiers locking in their rate for three years or less was 2.30 per cent in July, plummeting by 64 basis points since pre-pandemic in February, according to the RBA data.

However, new borrowers signing up for variable rates are likely to be saving less than new fixed rate customers. The average interest rate for new variable rate borrowers dropped by 33 basis points between February and July – almost half of the savings new fixed rate customers are pocketing.

Meanwhile, an existing mortgage holder who refinanced to a fixed term of up to three years in July may be paying 56 basis points less in interest on average, compared to someone who refinanced in February.

FebruaryJulyFeb vs July Difference
New customers -fixed (up to 3yr terms)2.94%2.30%-0.64%
New customers -variable3.25%2.92%-0.33%
Existing customers - fixed (up to 3yr terms)3.73%3.17%-0.56%
Existing customers - variable3.57%3.23%-0.34%

Source: RBA.

While fixed mortgage rates are seeing bigger cuts, lenders appear to be taking a refreshed focus on their variable rate home loan deals. More than 30 lenders cut fixed owner-occupier rates in the two months to September, but 42 lenders slashed variable rates for people living in their own homes in the same period, a RateCity analysis showed.

Fixed rate home loans are also dominating the sub-2 per cent club, with eight of the 10 lenders offering mortgage rates below 2 per cent requiring borrowers to lock in the rate for a set period of time.

The lowest fixed rate on the RateCity database is 1.90 per cent, an introductory deal from Reduce Home Loans.

Most recently, Greater Bank was the 10th lender to roll out a mortgage rate under 2 per cent, cutting its one-year fixed rate by 10 basis points to 1.99 per cent

Nearly 80 lenders recorded by RateCity offer at least one fixed owner-occupier rates below 2.5 per cent.

The 10 lenders offering rates under 2%

LenderLoan productAdvertised Rate
Reduce Home LoansFixed (intro rate 1 year)1.90%
Easy Street Financial ServicesVariable (loans over $750K)1.95%
Homestar Finance1-year fixed1.98%
Greater Bank1-year fixed1.99%
Bank First3-year fixed1.99%
Community First Credit Union2-year fixed1.99%
Loans.com.auVariable (intro rate 1 year)1.99%
People’s Choice Credit Union1-year fixed1.99%
Bank of Us1-year fixed (Tasmania only)1.99%
Hume Bank3-year fixed (Local postcodes only)1.99%

Source: RateCity.

Note: Hume Bank rate is only available to new loans for renovation or construction of new properties within 150 km of Albury Post Office. Loans.com.au product is an introductory variable rate – 1.99% for one year after which it reverts to 2.57%. Data accurate at the time of publishing.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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