While a lot of the public focus has been on the recent increase in variable rates by a number of financial institutions, including the Big Four, some other institutions have quietly dropped their fixed rate loans, either to gain market share or to perhaps price in a further move by the Reserve Bank.
Canstar’s Mitchell Watson observes that fixed rate loans are currently very competitive and really, there isn’t much further they can fall. On that basis borrowers should certainly be weighing up their fixed versus variable options.
Currently on Canstar’s database the minimum, maximum and average home loan interest rates are as follows:
|Table: Home Loan Market – Snapshot of the current market|
|Standard Variable||Package Variable||1 Year Fixed|
Source: www.canstar.com.au, the search results do not include all home loan providers, and may not include all features relevant to you. Based on $300,000 loan. Interest rates as at 9 November 2015.
Canstar Bank of the Year – Fixed Rate Home Loans Award-winner, ING DIRECT, said that it has seen increased borrower interest in fixed rate loans over the past few months.
ING DIRECT Executive director of customer John Arnott said customers were increasingly looking at splitting their home loans between fixed and variable rates.
“Splitting a home loan gives customers the peace of mind of more consistent repayments and also exposure to the low variable rates currently on offer. “It can be a very prudent way for customers to manage their home loan through interest rate cycles,” Mr Arnott said.
Mr Arnott also said fixed rate loans are now more flexible than they used to be.
“Customers can pay up to $10,000 extra per year off a fixed rate loan which gives people more options in managing their home loans,” Mr Arnott said.
Whether or not the Reserve Bank moves on rates again in the next few months, Canstar’s analysis suggests that one more cut of 25 basis points has already been priced in to most fixed-rate home loans.
As the table above shows, the current average 1, 2 and 3-year fixed rates on the Canstar database are lower than the average standard variable and package variable rates. The lowest 1 and 2-year fixed rates on the database are also lower than the lowest variable rates on offer. This suggests that many financial institutions are expecting another RBA rate cut or at the very least, no upward movement in the short or medium term.
Customer home loan intentions
While customer take-up of fixed rate loans may not yet be reflected in the official statistics, Canstar’s analysis of more than 140,000 visitors to its home loan tables this year has seen a definite move away from variable home loan product searches and toward searches for 1 and 3-year fixed rate loans. In March this year more than 43% of visitors were looking for a variable loan, compared to less than 35% of visitors in October. Could that forshadow a fixed-rate home loan boom?
If you’re considering splitting your home loan, try our Split Loan Calculator to help work out the right combination of loans (fixed and variable) for your lifestyle.