Home loan comparison website warns about the importance of researching a fixed loan

One of Australia’s biggest comparison websites Finder.com.au is warning borrowers to compare home loans or face paying too much, as more Aussies opt for a fixed term.

Finder.com.au says many fixed rate home loans have attractively low rates but after the fixed period ends, they are reverting up to 1.01 percentage points.

According to the website, the average three-year fixed rate is currently 5.07% and reverting to 5.51% after the fixed period ends, but there are some banks, including all four major banks, that revert up to 6.19%.

In July 2011, the difference between average three-year fixed rates and the revert rates was only 0.03%.

As of October 2013, the difference between three-year fixed rates and revert rates has climbed to 0.44%.

The amount of borrowers choosing to fix has climbed in the last 12 months by 29,122 more.

“Fixed loans are great for certainty that your repayments will remain the same during the fixed term, particularly when there’s talk of rising interest rates on the horizon following the latest inflation figures,” says spokesperson of Finder.com.au Michelle Hutchison.

“And there are some very good value deals currently being offered, with three-year fixed rates starting from 4.69 % on finder.com.au/home-loans. But low fixed rate loans are not necessarily the best value over a 30-year loan term if the revert rate is much higher.

“For instance, let’s take a typical $300,000 mortgage over 30 years with the average three-year fixed home loan of 5.07% reverting to 5.51%.

“The extra cost after the fixed period would be about $81 per month. Over the remaining loan term of 27 years following the fixed period, this extra cost is potentially over $26,000,” says Hutchison.

Hutchison says the best way to avoid being ripped off with a fixed home loan is by comparing home loans before your fixed term ends and renegotiating with your lender or to switch to a better deal.

“If you fixed at the average three-year fixed rate of 5.07% and switched after three years to one of the lowest variable rates available – currently 4.59% – that’s $168 less in monthly repayments compared to the average revert rate of 5.51%.

“Over the remaining loan term that’s a saving of over $54,000,” says Hutchison.

Nicola Trotman

Nicola Trotman

With a penchant for the written word, Nicola has built a career doing just this – now Creative Director at thriving Melbourne-based PR agency, Greenpoint Media.

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