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2.09%: Fixed home loans are pretty much free now

Tony Yoo
·2-min read
A calculator, house key and a model house sitting on a desk.
Fixed home loans are very, very cheap at the moment. (Image: Getty)

An unusual double rate cut from the Reserve Bank in March has sent mortgage costs plummeting, especially for fixed home loans.

Comparison site Mozo has reported the average one-year fixed interest rate is now 2.82 per cent, compared to the average variable rate of 3.45 per cent.

Two products are even offering 2.09 per cent fixed.

"Right now there are great deals available for borrowers who are happy to lock in a rate," said Mozo director Kirsty Lamont.

"The full economic impact of Covid-19 is still unknown causing uncertainty and fear, fixed interest rates are a great way to lock in a payment plan for your home loan."

The lowest 3-year fixed home loan rates on the market.
Two lenders are offering 2.09 per cent fixed for three years. (Image: Mozo)

Conventionally smaller lenders have generally had lower rates than the big four banks and moved faster and deeper to cut in response to a downward movement from the RBA.

But with the RBA cash rate at rock bottom, current times are far from conventional.

"Normally after a [RBA] rate cut, these smaller lenders broadcast their ability to immediately pass on the rate cut to their customers, but there has been silence after the emergency March cut," said Lamont.

"Big banks seem to have deeper pockets and more agility across their loan books in these unprecedented times which has seen them cut their fixed home loan rates… Smaller lenders and neobanks have struggled to make these reductions.”

Fixed home loan rates from ANZ, CBA, NAB and Westpac banks.
ANZ, CBA, NAB and Westpac moved faster to cut than many smaller lenders. (Image: Mozo)

Beware the fixed rate trap

While interest rates in the low 2 per cent range are very attractive, Lamont warned borrowers to take note of what variable rate they would return to after the fixed term ended.

"When looking for a fixed rate home loan it’s important to consider the automatic revert rate, so you aren’t forced to refinance at the end of your term," she said.

"The average revert rate for fixed home loans is 3.62% but some lenders have lower revert rates."

And of course, advanced repayments are not possible in most fixed home loans.

Lamont said the RBA has already indicated it will not go any lower than the current 0.25 per cent cash rate, so borrowers would have confidence that mortgage rates have hit the bottom.

The situation might even trigger a more permanent cultural change in the country.

"With so many fixed home loans offering low interest rates, we might see a shift in Australia from a majority variable rate market to a predominantly fixed rate market," said Lamont.

"Many countries around the world have a majority fixed rate market, like the United States where it’s common to have a 30 year fixed rate."

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