Is now the right time to fix your home loan?

To fix or not to fix that is the question – or at least it’s the question on the mind of both current and prospective Aussie homeowners.

If you’ve been keeping up with all the latest in home loan news, then you probably know that three of the big four banks hiked variable rates across the board last year, pushing many homeowners into the arms of smaller players and challenger lenders.

“Online lenders have been giving the big banks a run for their money for a while now and with the majority of the big four increasing their rates, it’s put a bad taste in the mouths of customers,” said Mozo Product Data Manager, Peter Marshall.

And while the home loan market continues to remain rocky, Aussies looking to purchase their first home this year may be wondering whether to fix their mortgage to protect themselves from potential future hikes.

However, while fixing your home loan might sound like the right way to go, according to Marshall, unless you’re in it for the long haul, it might not make that much of a difference.

“If you’re after certainty or the assurance that your rate won’t change, then a fixed rate could be a good option – but you might have to pay a premium for it,” he said.

“Lenders have started to price in a potential cut to the cash rate this year, particularly for their longer term rates, so if you’re after certainty in your repayments over the longer term there are some sharp deals around.”

And with Bank of Queensland and Virgin Money kicking off the year with steep rate hikes, Marshall is predicting that the RBA may act soon and cut rates.

“I wouldn’t be surprised if the RBA cut rates in the first half of the year. This would mean the banks could hold on to some of the cash rate cuts to make up for increased funding costs, which should mean less pain for borrowers,” he said.

“But I can’t see lenders rushing to slash variable rates any time soon, and if they do pass on the cut, it won’t be by much. So if the RBA wants to provide relief for borrowers as well, a second cut could be on the cards.”

Smaller lenders shaking up the market

At the moment, the average variable rate for a basic loan without an offset account for the big four banks is 3.89%. That compares to the lowest comparable variable rate in the Mozo database – Reduce Home Loans’ Rate Lovers product – of 3.44%, making challenger lenders a hot pick for Aussie buyers.

To put that into perspective, say you took out a $300,000 to be repaid over 30 years on the average big bank rate of 3.89%. According to the Mozo repayment calculator, your monthly repayments would clock in at $1,413. But if you were to take out the same loan on the Reduce rate of 3.44%, your repayments would drop to $1,337 – a yearly saving of $912.

From Mozo

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These articles provide you with factual information only, and are not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. The information in these articles is believed to be reliable at the time of distribution, but EFS does not warrant its completeness or accuracy. Neither EFS nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in these articles. For information about whether a loan may be suitable for you, call EFS on 02 8041 6746.