Fixed rate home loans proving popular: Why more borrowers are making the switch

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The demand for fixed rate home loans has increased significantly over the first 3 months of 2016. That’s according to the latest AFG Mortgage Index. The rising popularity of fixed rates can be attributed not only to current record low interest rates, but also to a growing expectation that lenders will soon lift rates regardless of any moves by the Reserve Bank.

On announcing the results, AFG’s general manager of sales and operations, Mark Hewitt, explained why more borrowers are choosing to lock in fixed rates now:

“… With rates being at historical lows, the downside risk of fixing is relatively small so many borrowers are choosing to lock in now.

“Despite this month’s decision by the Reserve Bank of Australia to leave the cash rate on hold at a record low 2%, there are also no guarantees lenders won’t make their own moves outside the RBA cycle.

“Some are talking about increased funding and regulatory costs and locking the low rates in now is a way borrowers can insulate themselves against any out of cycle [interest rate] increases by the banks.”

Figures released by Mortgage Choice on Monday, 4 April back up AFG’s numbers showing fixed rate home loans increasing during March. Fixed rate loans accounted for nearly a quarter of all home loans during the month according to Mortgage Choice.

New APRA rules could soon lead to higher rates

While the RBA is unlikely to raise the official cash rate any time soon, whether the banks lift rates independently is another story.

The Australian Prudential Regulation Authority (APRA) recently outlined plans to impose new rules on lenders that will limit their reliance on short-term wholesale funding.

The rules will require 15 of Australia’s largest banks to maintain a net stable funding ratio of at least 100%. This is designed to ensure banks keep a stable funding profile.

These new requirements could push bank funding costs higher. Lenders will likely pass these higher costs onto customers through higher mortgage rates.

So, now might be the time to lock in a low rate on a portion of your mortgage and home loans in Ballina.

Competition among lenders to attract borrowers

The good news for borrowers is that lenders are now in hot competition with each other to attract your business. This competition has now pushed some interest rates below the 4% pa mark.

For example, ING Direct announced on Tuesday 19 April that its 3-year fixed interest rate (including a 0.10% pa discount) for owner-occupiers with an Orange Advantage home loan has been reduced to 3.98% pa (comparison rate 4.66% pa).

The fixed interest rate discount of 10 basis points applies to both new ING Direct customers and existing owner-occupier Orange Advantage customers who apply to switch, split or increase a portion of their existing Orange Advantage home loan to a fixed rate loan.[1]

In fact, there are a number of competitive 3-year fixed rate loans as low as 3.99% pa currently available if your loan-to-value ratio is at least 80%. Similarly, the most competitive variable rate is also a low 3.99% pa.[2]

With expected increases in bank funding costs, there’s no guarantee these low rates will last.

To see how you could save on your mortgage by taking advantage of the low fixed rates currently on offer, talk to a Westlawn Mortgage Broker today.

Why use a mortgage broker?

The home loan market is constantly changing. New products regularly come onto the market offering a wide assortment of features and benefits. Fees, charges and interest rates also regularly change. Then there are changes to lending criteria which may result in a particular type of borrower becoming either eligible or ineligible for certain loans.

This constant change in such a competitive marketplace makes it difficult for borrowers to keep well-informed on the multitude of options available to them from the more than 2,000 home loan products on offer.

But, for a mortgage broker, keeping well-informed and up to date with the home loan market is their business.

If you are considering a new home loan or refinancing, contact a Westlawn Mortgage Broker. We can help you find the right home loan package to suit your needs. We’ll also support you throughout the home loan application process.

20 April 2016

[1] Offer current as at 20 April 2016. Offer subject to change by lender at any time. Check lender website for details. Conditions apply. Information provided for illustration purposes only and does not constitute an offer.
[2] From Rates quoted as at 18 April 2016.

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