05 Apr Is it time to fix?
With the recent RBA emergency rate cut to a record low of 0.25%, the majority of he banks made the decision to focus their rate reductions on fixed rates and many leaving the variable rate unchanged.
The RBA took this action to assist with the economic uncertainty that the coronavirus pandemic has presented. To assist this the RBA entered the bond market pushing the yield down on 3 year bonds to 0.25%. This action allows banks to borrow at a lower rate and pass these fixed rates savings on.
These fixed rate changes have produced a major difference between lender variable rate and fixed rate offerings, with some fixed rates now available in the low 2’s and most variable rates around 3%.
Whilst these rates are substantially lower than the variable rate it makes sense to review your options. A saving of 1.1% on a $400,000 loan fixed over 3 years can save you around $226* per month or $8,136* over the 3 years.
There are factors to consider when changing to a fixed rate, Paul Fox our senior broker says “Fixed rates are a great way to reduce the overall cost of your loan, but if you change your mind and want to break the fixed term contract you could be faced with costly exit fees so may not be suitable for everyone. There are also restrictions on how much extra you can pay.
If you currently have savings in your offset this could also impact you as many fixed rate loans do not have the ability to offset, however we have seen recently new fixed rate products available forom a number of lenders.”
Want to know if a fixed rate would be right for you then it may be a good time to book a review with your lender or preferably your local mortgage broker.
*Figures quoted are for general information only and based on based on a loan amount outstanding of $400,000 with a remaining term of 25 years, rates used 2.29% fixed rate for 3 years (Comparison rate 3.89%) and 3.39% variable rate (Comparisons rate 3.79%).