Experts say now is the time to fix a home loan rate

INTEREST rate uncertainty has led some mortgage experts to declare 2017 “the year of the fixed rate” as opinion seems divided on whether official cash rates will rise, fall, or stay put in the near future.

A report by Mint Equity Mortgage Brokers claimed that after some lenders increased fixed rates in December, fewer banks are now willing to offer lower rates on long term deals.

The firm believes banks are preparing to safeguard profit buffers by hiking rates going forward. This would mean short term fixed periods offered more value than the five-year plus options.

“I think rates are going to increase and lenders will continue to modify their credit policies,” Mint Equity director Zac Peteh said. “Now is a great time to secure good fixed interest rates before they increase.”

Mr Peteh expects the RBA to lower the official cash rate in February or March, but does not believe banks will pass on the savings to borrowers.

“The elements that affect the official cash rate and the wholesale fund prices are complex, but the reality is, USA elections, ‘Trump-economics’, China, bonds, derivatives, trade and export, GDP, inflation, employment and consumer sentiment all impact how much our home loans cost us,” he said. “2016 saw the lowest recorded RBA official cash rate and we think it can go even lower in 2017.”

Mortgage Choice CEO John Flavell agrees lenders are likely to lift fixed and variable rates throughout 2017, but is not overly concerned.

“Funding costs are rising, which is putting pressure on lenders,” Mr Flavell said. “It’s important to keep in mind that interest rates will still be very low by historical standards. Any rate rises are likely to be small, which will help keep the cost of borrowing affordable.”

The movements of fixed and variable rates can be prompted by separate factors in the global economy, so one may experience a rise or fall while the other does not.

“There are several different things that affect interest rates, including local and global economic factors, changes to long term bond rates and changes to the local cash rate,” Mr Flavell said. “Long term bond rates have risen recently, which caused many lenders to lift fixed rates. Then, as we saw, many lenders lifted their variable rates as well.

A woman enters the Reserve Bank of Australia (RBA) headquarters in Sydney, Australia. Picture: Brendon Thorne/Bloomberg

“As a general rule of thumb, when fixed rates rise, variable rate increases aren’t too far behind.”

Those looking to fix this year can still find attractive rates on two year and five-year fixed products, according to Rate City statistics. Homestar Finance is offering the best rate on a two-year product at 3.64 per cent, followed by Pacific Mortgage Group (3.65 per cent), Select Encompass Credit Union (3.69 per cent), QT Mutual Bank (3.69 per cent) and Bank Australia (3.74 per cent).

Gateway Credit Union tops the five-year offering with 4.03 per cent, followed by Freedom Lend (4.04 per cent), BCU (4.1 per cent), Greater Bank (4.19 per cent) and ING Direct (4.19 per cent).

Smartline Mortgage Adviser Scott McCray says those not wanting to commit to fixed or variable can combine both.

“During uncertain times it’s not a bad idea to take an each way bet,” Mr McCray said. “Fix 50 per cent of the loan for two or three years and make the other 50 per cent variable, with a linked offset account for excess cash.”

Tim McIntyre, News Corp Australia Network

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