Aussies are being hit with higher home loan repayments as interest rates rise, but there’s one move that could save you thousands.
Home loans under 4 per cent have left the building and there are now just six loans under 4.5 per cent, Canstar found. That’s compared to a whopping 719 loans available 12 months ago.
But there could be a window of opportunity to lock in a low fixed rate, Canstar found.
Also read: Making a mountain out of the mortgage cliff
The average variable rate on Canstar’s database is currently 5.83 per cent, while the lowest two-year fixed rate is 5.19 per cent (5.11 per cent comparison rate).
By locking in this two-year fixed rate, Canstar found the average borrower could save $9,153 in interest costs over the next two years and cut their loan amount by $2,160.
That’s based on NAB’s forecast coming true. The major bank currently predicts the cash rate will peak at 4.10 per cent in May, before falling 1.00 per cent by early 2024.
Canstar editor-at-large and money expert Effie Zahos said switching to a fixed rate could ease the pressure on your budget.
“Locking in is all about buying peace of mind and the certainty of knowing what your repayments will be each month for that fixed-rate period,” Zahos said.
“Traditionally, you would pay a premium for that, meaning you would pay a little more than what the variable rate is but, right now, a window of opportunity exists to lock in for two years and pay less than what the average variable rate is.”
Zahos warned things could always change and rate forecasts may not ring true. Additionally, if rates fall, you may miss out on that downward swing.
“Borrowers considering fixing all or part of their loan need to consider what discount is on offer to lock in and how many rate hikes until they are on par again with the variable rates,” Zahos said.
Canstar shared five tips for choosing a fixed-rate loan:
Ask for a rate lock to secure the advertised rate
Make sure the switching fees don’t offset the savings
Don’t increase your term as this could increase interest paid
Ask if extra repayments are allowed
See if there is an offset account or redraw facility