Yahoo Finance Borrowers warned against home loan move that will ‘block’ RBA interest rate cuts
A growing number of Aussie banks have slashed interest rates on fixed-rate loans, with some rates as low as 5.79 per cent.
Finance expert David Koch has warned borrowers against switching to a fixed-rate home loan too soon, or they will risk missing out on further interest rate relief. A growing number of Aussie banks have reduced their fixed interest rates, with many lenders making changes to their three-year fixed-rate options.
ME Bank slashed its fixed rates by as much as 0.60 per cent last week. The bank’s two-year fixed rate is now down to 5.79 per cent - which is much lower than the average variable rate of 6.90 per cent for owner-occupiers.
While locking in lower fixed-rates may seem tempting, Koch warned borrowers could find themselves worse off if the Reserve Bank (RBA) cuts the cash rate later this year.
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“Fixed home loans are great for shielding you from rate rises, but they will block you from getting a rate cut,” the Compare the Market economic director said.
“Generally, when we’re at the peak of the cycle – which we probably are now – fixed rate loans are a leading indicator on where the market is thinking interest rates are going to go.
“That’s because banks won’t reduce their fixed rates unless they think it’s a safe bet for them. The reality is rates could be a lot lower in four years.”
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The proportion of borrowers opting for a fixed rate has dropped to a new record low of just 1.4 per cent, the latest ABS lending indicator data found.
That’s despite the fact around half of lenders have cut at least one fixed rate since the start of the year.
RateCity research director Sally Tindall said fixed rates still had “a long way to go” before they would rise in popularity.
“Borrowers are understandably opting to stick on variable rates for now until lenders put more competitive options on the table, and we get more clarity on exactly when and how many RBA rate cuts we’re likely to see,” Tindall said.
When will interest rates go down?
All of the Big Four banks are forecasting interest rate cuts later this year. Australia’s biggest bank, Commonwealth Bank, is expecting three 0.25 per cent interest rate cuts by the end of the year starting from September.
If this happens, Compare the Market found repayments on a $750,000 home loan would be reduced by $354 per month. This is based on a variable interest rate of 5.94 per cent and a loan term of 30 years.
Westpac believes interest rate cuts will start in September, while NAB and ANZ believe it won’t be until November.
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