NAB cuts five-year fixed-rate home loan to 20-year low of 5.55%

NAB has from today cut its five-year fixed-rate home loan by 29 basis points to 5.55% under its package home loan offering.

This is its lowest the bank’s five-year fixed-rate home loan has been in 20 years.

NAB offers package home loan borrowers a discounted variable rate of 5.53% if they borrow $500,000 or more.

Borrowers who take out a five-year fixed-rate will be punting on interest rates rising over the next five years.

NAB chief economist Alan Oster expects to further rate cuts this year, taking the cash rate to 2.5%.

Were the bank to pass on around 40 out of these expected 50 basis points, variable rate borrowers could see their interest rate fall to as low as 5.1%.

However, over 2014, NAB expects the cash rate to rise back to 3%, though some lenders expect it could rise as high as 4%.

• The Commonwealth Bank offers a five-year fixed rate home loan at 5.69% under its package offering
• Westpac is at 5.79% under its package home loan offering
• ANZ is at 5.84% under its package home loan offering

Three-year fixed-rate home loans remain by far the most popular fixed-rate product among borrowers, with five-year fixed-rate home loans a marginal product.

According to mortgage comparison website homeloanfinder.com.au, three-year fixed-rate home loans currently account for two-thirds of all fixed-rate product choices with five-year fixed-rate home loans second most popular, accounting for a fifth of fixed-rate products selected currently.

Adrian Barclay, personal finance expert from HomeLoanFinder.com.au, wrote recently on Property Observer, that choosing between a three-year and five-year fixed rate home loan was an “important decision” especially considering that an average home changes hands every seven years.

“So, if you lock in a five-year fixed home loan three years into your home ownership, on average, you may sell it before. This can be an extremely costly way to handle home ownership,” Barclay says.

Costs can rise to thousands of dollars if you sell your house within the five-year fixed period while obtaining financing for renovations can also be harder than for borrowers who have a variable construction loan or line of credit home loan.

In 1993 borrowers who fixed for five-years with NAB would have done very well.

The cash rate fell to 4.75% in December 1993 but then rose to a high of 7.5% between December 1994 and July 1996.

It only fell back to 4.75% in December 1998.

NAB will be looking to cash in on the growing appetite among borrowers for fixed-rate home loans with Mortgage Choice reporting that more than a quarter of home loans (26%) were fixed in March, up from 20.6% in February and well above the 12-month average of 17.7%.

Demand for fixed-rate home loan is particularly high in Queensland where more than a third fixed their home loan in March, according to Mortgage Choice figures.