Good time to lock in a fixed rate: Finder

With more borrowers than ever before in this latest low rate cycle opting for fixed rates, Finder.com.au’s Michelle Hutchison is suggesting that borrowers may want to seriously consider fixing their home loan.

At present, borrowers fixing their loans through the Finder website are at 36%, the highest level in the past three years – since the beginning of the falls of the cash rate in November 2011.

At the start of 2014, 25% of borrowers were fixing, compared to November 2011 when just 11% were looking to fix.

Hutchison said that, despite some experts predicting a cut before the rates start to increase, the rise in fixed rate popularity may be the abundance of experts predicting rates to climb. In their survey, seven of 37 experts predict a rate drop next year.

“Despite this, they are still expecting rates to eventually rise, so borrowers who have overstretched themselves or concerned should consider locking in a fixed rate home loan,” she said.

“This year, we've seen average variable home loan rates fall by 0.24 percentage points – from 5.46% in January to 5.22% now. The difference in monthly repayments for a $300,000 loan size over 30 years is $45 less per month.

“We've also seen fixed rates also take a dive, with the average three-year fixed rate falling by 0.19 percentage points from 5.17% to 4.98% now. If you fixed a $300,000 home loan in January you would be paying $35 more per month than if you fixed now.”

The lowest variable rate available is with Heritage Bank, at 4.39%, with three year fixed rates starting at 4.59% - with ME Bank and Greater Building Society offering this rate.

“Lenders have continued to cut home loan rates this year because their funding costs have fallen and they have passed on the savings to borrowers, they also have room to move as they haven't passed on all of the cash rate cuts since rates began to fall in November 2011,” she said.

“Fixed loans are usually a barometer for the direction of interest rate movements and with fixed rates still falling, it could be a sign that another cash rate cut could happen next year.”

Just one lender has dropped their variable home loan rate this month, but some more may be seen, she suggested.

“Despite this, interest rates are likely to eventually start rising so it's a great time to lock in a fixed rate if you're concerned about rising rates. Or borrowers could hedge their bets and split their loan so a portion is with a variable rate and a portion is fixed,” Hutchison said.