Is now the right time to fix my home loan?

Right now in Australia, there are two things we are sure of: home loan interest rates have never been lower, and times have never been more uncertain. This means many Australians may be wondering if they should ride out the low interest rate wave with a variable home loan rate, or seek out more stability with a fixed rate?

There are a range of things to consider when deciding if now is the time to fix your home loan, including the current home loan market, what the experts are suggesting and your own instincts. Let’s take a look at what fixing your home loan in 2020 rate may look like.

Benefits of fixed rates

Choosing a fixed interest rate for your mortgage comes with its own advantages and disadvantages.

One advantage of a fixed rate home loan is that you’re afforded much more stability in your budget. You’ll know exactly just how much you owe in mortgage repayments each month, and this will not change for your fixed rate period.

 

Arguably the biggest benefit of a fixed rate mortgage is that your repayments are protected by market fluctuations. Home loan interest rates are influenced by the Reserve Bank of Australia’s (RBA) cash rate. If the cash rate were to rise, generally so would your interest rate if your lender passed on the cut in full, and therefore your mortgage repayments would increase too. On the flip side, if rates were to fall (as they have consistently for a number of years) and you had a fixed rate, you miss out on a potential rate cut and reduced interest repayments.

Also keep in mind that variable rate home loans typically come with a greater variety of features. However, unlike other lenders Reduce Home Loans does offer fixed rate options with offset accounts and loan splitting.

 

You cannot predict the bottom of the market

When it comes to deciding whether now is the best time to fix or not, it’s important to remember you cannot predict the bottom of the market.

In 2008, during the global financial crisis, many homeowners panic-fixed their home loan rates after the RBA cash rate spiked to 7.25 per cent. But by April 2009, it had been cut to a new low of 3 per cent.

This means those borrowers that fixed during a 7.25 per cent cash rate environment missed out on a potential rate cut of 4.25 per cent. This may have been the difference of thousands of dollars in interest repayments for many Aussie homeowners.

In June this year, Treasurer Josh Frydenburg announced an impending recession thanks to the impact of COVID-19 and last year’s bushfire season on the economy. However, if you were to have fixed rates then, you may have missed out on further interest reductions on your mortgage. The RBA cut the cash rate to 0.10 per cent only this month, and fixed rates have never been lower in Australia.

So, how do you know when may be the right time to fix?

 

What are the experts saying?

One of the best ways to decide whether to fix your home loan rate is to do your own research and consider what economic experts are saying about the interest rate market.

In a Statement on Monetary policy following the cutting of the cash rate to 0.10 per cent in November, RBA Governor, Philip Lowe, said: “The board is not contemplating a further reduction in interest rates”.

In fact, another cut to the cash rate may not occur again for some time, with Governor Lowe telling reporters “we’ve done as much as we can on interest rates and the focus is now on the quantity of asset purchases”.

Shane Oliver, chief economist at AMP Capital, believes that ultra-low interest rates are likely to be “with us for several years”. And in an interview with news.com.au, Market Analyst, Kyle Rodda, stated that the cash rate cut was “good news for homeowners and homebuyers”, as the cut would “lower mortgage rates and support household spending by lowering the cost of debt”.

But what about the risk of rates rising? Governor Lowe told reporters following the cash rate cut in November that increasing interest rates was not on the cards until the inflation rate was “sustainably within the target range” of 2-3 per cent.

All in all, it appears the low rate environment may be here to stay for a little while longer. This means some homeowners may feel it is time to lock in a low rate. Others may consider riding it out with a variable rate and waiting until we reach target inflation levels and recover from the impacts of COVID-19 before fixing.

 

What interest rates are on offer?

The good news for borrowers is that whatever you choose – variable or fixed – interest rates are dirt cheap. And there’s nowhere in the Australian market that you’ll find cheaper rates than at Reduce Home Loans.

Reduce Home Loans is currently offering the lowest ongoing variable home loan on the market, at a record-breaking 1.77 per cent.

And fixed rate home loan seekers rejoice, with offers from Reduce Home Loans starting as low as 2.19 per cent. As mentioned earlier, a fixed rate with Reduce Home Loans is a competitive option in the market as, unlike many other banks, our fixed rate loans come with helpful features like an offset account or the ability to split your loan repayments between fixed and variable.

Whichever home loan interest rate option you choose, ensure you do your due diligence and pick the type that suits your financial situation best. And if you still can’t decide, you may always want to consider splitting your home loan rate.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.