In the last month all four of Australia’s biggest banks cut their fixed rates by between 0.2 per cent and 0.35 per cent.
It doesn’t seem like a lot, but it is.
It’s also the first time in 12 months that fixed rates have been cut.
So, should we be exploring fixed home loans?
There are two options when taking out a loan with the bank; choose to pay the variable rate which can change month to month or choose to pay a fixed rate that doesn’t change.
Banks typically offer a fixed rate of one to five years. If you lock in the fixed rate for a given period, and the variable rate ends up being higher over the same period, you come out ahead.
Inversely, if you lock in the fixed rate for a given period, and the variable rate ends up being lower over the same period, you come out behind.
Below are the fixed rates offered by the big four banks today:
For context, the average variable rate customer pays 6.23 per cent today.
Every bank and borrower are different and it is possible to get a lower variable or fixed rate if you shopped around to smaller banks and credit unions.
The point is ,to come out ahead on a one-year fixed rate loan, the variable rate would have to be between 0.11 per cent and 0.36 per cent higher than it is today for the majority of the next 12 months.
In other words, the RBA would need to raise rates one more time and then keep them there for the next 12 months.
No one has a crystal ball, but I would be surprised if anyone came out ahead on a 12-month fixed rate today.
But this is something worth monitoring over the next few months.
One final point to leave you with; keep your bank honest. The RBA provide insightful data on how much an average bank customer pays on their home loan:
The
above table shows the RBA has increased its rates by 4 per cent since April
2022, yet the average owner occupier home loan has only increased by 3.37 per
cent, and average investor home loan by 3.33 per cent.
Why?
Because
Aussies have been haggling with their banks for a better rate and/or
refinancing to someone else who wants their business more.
On the
average home loan this is an extra $4,000 in your pocket year on year.
Reach
out to your broker today and see if you can save yourself some interest over
the next 12 months.
