The best time to fix your mortgage rate? Yesterday
Home loan rates are still incredibly low, but lenders have started moving fixed rates up and variable rates down.
Over the last 2 years, fixed rate home loans have been the market's lowest interest rates. But this trend is shifting.
Looking at Finder's mortgage database, lenders this month have lowered interest rates on 124 variable rate home loans. While lenders have dropped some fixed rates over the same period, lenders increased a total of 297 fixed rate loans.
This trend shouldn't come as too much of a surprise. Prior to November 2019, variable rates were almost always the lowest rates on the market. When the Reserve Bank began cutting the cash rate (which affects lenders' borrowing costs), lenders responded by dropping fixed rates to new lows.
Fixed rates typically only get cheaper than variable rate loans when lenders anticipate a long period of low interest rates. And interest rates have been lower than they've ever been over the last 2 years.
While there's no indication that the RBA will increase rates soon (the bank itself has said not until 2024), lenders are also free to make their own rate moves. And they are.
For now, the absolute lowest rates on the market are fixed rate products. Greater Bank has 1-year fixed rates as low as 1.59%. Meanwhile the lowest variable rate is from loans.com.au with a rate of 1.85%.
But if the current trend continues, variable rate loans will likely become more competitive than fixed rate loans.
What should borrowers do?
If you already have a competitive fixed rate loan then you have nothing to worry about. Once you've fixed, your rate doesn't change. The rising fixed rates mentioned in this article only apply to new borrowers.
If you currently have a variable rate home loan then your rate may have fallen already. But it's worth checking your lender's current offers. It's possible your lender has cut variable rates for new customers while keeping you on the old, higher rate. If you're in this position, you should call your lender and ask for a better deal.
For anyone looking to get a home loan soon, you're still in a good position. Rates remain extremely competitive. You could fix for 1, 2 or 3 years and lock in a good deal. But a variable rate loan also looks like a very good prospect, and could get even lower soon.
Remember that deciding between a fixed or variable home loan is not really about trying to get the lowest rate possible. A variable loan offers flexibility and is easier to refinance. A fixed rate loan is harder to exit but offers certainty because you know exactly how much you have to repay every month.
Looking for a home loan? Check out home loan rates from across the market.