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Fixed rates: have borrowers missed the lowest point?

Fixed rates: have borrowers missed the lowest point?

After two years of ongoing interest rate cuts, which have pushed interest rates to an all-time low, has the rate reprieve for home owners come to an end?

Latest research from Australia’s leading financial comparison website, RateCity (www.ratecity.com.au), shows that 85 lenders have increased interest rates on fixed rate home loans since early October.

Alex Parsons, CEO of RateCity.com.au, said the longer-term fixed rates such as 5-year terms were the first to be adjusted up and that now shorter fixed terms are following suit.

“Fixed rates appear to have bottomed out and are now starting to rise, with 85 lenders increasing some of their fixed rates in the past month,” he said.

“We know fixed rates usually start to rise well before variable rates, and borrowers often miss the lowest point. After all, the banks have a far better chance of predicting future rate movements than the average borrower.”

Picking the bottom of a rate cycle is difficult for the average punter, but Parsons said current fixed rates are still well below the long-term average and that it is possible to get a good fixed rate deal.

RateCity data shows that the current average 3-year fixed rate is 5.09 percent, but fixed rates are available from as low as 4.69 percent for 3-year terms and 4.29 percent for 1-year terms. By comparison, the historic average 3-year fixed rate over the past decade is 6.94 percent.

“Fixed rates are starting to go up and it’s likely they will continue to do so. But there is no guarantee they will continue on an extended upward trend – it’s always a bet between you and bank!” said Parsons.

“People often fix their interest rates out of panic; in the lead up to the GFC, fixing got progressively more popular as rates increased, to the point where one quarter of new loans were fixed at over 9 percent in March 2008.”

But there’s no reason to panic, he said. While banks have teams of people predicting future rate movements, the average punter can follow a few steps to make smarter calls, according to Parsons:

  • Compare regularly – the information is online at your fingertips at RateCity.com.au, so use it to your advantage.
  • Fix for the benefit of certainty of payments, this is true regardless of when you fix.
  • For variable, use the low rate environment to your advantage and make extra repayments to take years off your loan. This is generally not allowed on fixed loans.
  • Consider a split loan to get the benefits of both fixed and variable loans.

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