RBA holds again: Is it time to fix your mortgage rate?
The cash rate stays at 0.10%, but more Australians are opting to fix.
The Reserve Bank has once again held the cash rate at the record low level of 0.10%. This was completely expected, with 100% of the experts in Finder's cash rate survey predicting as much.
The cash rate has now remained at 0.10% for six months. Today's decision comes off the back of soaring property prices across the country. The latest CoreLogic price figures show that the national home value index rose 2.8% last month, the fastest growth rate since October 1988.
Rising property prices and a low cash rate are connected. As borrowing costs get cheaper, prices tend to rise as buyers can stretch their budgets further. But while borrowing costs are so low, if property prices keep rising then buyers can only stretch so far.
One way borrowers are choosing to keep their costs down is by fixing their home loan interest rates. Usually higher than variable home loans, fixed rate loans are now often lower than their more flexible counterparts.
Even the Big Four banks are offering fixed rate loans with interest rates well under 2.00%.
These cheaper fixed rates are driving more borrowers to fix their rates. The latest ABS data shows that while variable rates remain a bigger proportion of all home loans in dollar terms, fixed rates have soared in the last 12 months.
So is it time to fix? This is always a tricky question. Out of 40 experts Finder surveyed, 37 said that they expect the RBA to keep the cash rate at 0.10% until the end of 2022. This suggests borrowers don't need to rush. Rates should remain low for a while.
But with fixed rates beating out variable loans, borrowers could still get ahead by fixing now. Let's use the Commonwealth Bank as an example. If you're an owner-occupier on CommBank's lowest variable rate of 2.69%, you could switch to the bank's lowest comparable fixed rate of 1.94%.
If you had a $500,000 loan amount over 25 years, fixing to a lower rate would save you $187 a month or $2,244 a year.
- Monthly repayments at 2.69% = $2,291
- Monthly repayments at 1.94% = $2,104
And that's just one lender. You may find even bigger savings if you switch to a different lender with a cheaper home loan on offer.
Of course, fixing your rate isn't just about securing a good deal. It's more about your desire for a predictable, unchanging rate that allows you to budget your future repayments without ever worrying about rates going up (or caring too much if they go down).
If you care more about the ability to make extra repayments and exit your loan early without any penalties, opting for a variable rate might make more sense even if the actual rate is higher.
It's a choice every borrower must make for themselves. And with both fixed and variable rate loans so low right now, borrowers have plenty of options whatever they decide.