Tip from Mortgage Brokers Australia:
Fixing a mortgage ensures consistent monthly repayments no matter what the Reserve Bank does with mortgage interest rates!
Mortgage Brokers Australia says the rise in the popularity of fixed-rate homeloans reflects increasing consumer concern about the future of mortgage interest rates.
A recent monthly mortgage index for Mortgage Brokers Australia showed that it’s new lending proportion of fixed mortgages increased by 10% during 2010. Other lenders and brokers are experiencing the biggest demand for fixed rates in almost three years with one reporting the level of demand reaching 15.2 per cent of its approvals in December.
Home Buyers and Mortgage Holders are turning to fixed rate mortgages in response to the steady rise in mortgage interest rates that we experienced last year and predictions are that rates will go even higher this year. The Reserve Bank cash rate reached a low point of 3 per cent in April 2009 and started rising six months later. Since then it has gone up to 4.75 per cent, with the most recent change being last November.
Mortgage Interest Rates are on hold for now but economists and Mortgage Brokers Australia expect the next move to be up.
ANZ’s forecast is for the Reserve Bank’s cash rate to rise from the current level of 4.75% to 5.5% by the end of 2011. Commonwealth Bank agrees that the cash rate will reach 5.5% by year end and NAB is forecasting 5.25%.
Mortgage Brokers Australia suspects that if the bank’s economists are correct, a possible scenarion this year is that the Reserve Bank Cash Rate may increase by at least 0.50%.
Another issue to consider is, how will lenders respond in the midst of further Reserve Bank increases this year? It was reported that only five out of 99 lenders recently surveyed, pegged their variable home loan rate increases to that of Reserve Bank last year. In November, when the Reserve Bank put up rates by 0.25 of a per cent, the average home loan rate increase was 0.32 of a per cent. Therefore there is also the possibility that lenders may add something on top of any RBA increases, just like they have done before.
Mortgage Brokers Australia – To fix or not to fix in 2011?
The standard variable home loan rates offered by the big banks start with NAB at 7.67%, ANZ and St George 7.8%, Commonwealth 7.81% and Westpac at 7.86%. Many borrowers who have sourced their homeloan from one of the major banks will more than likely be receiving a package discount of around 0.6% resulting in their mortgage interest rate being around 7.10 – 7.20%. Some lenders may offer larger discounts with the Refinance Mortgage Loan Broker (Refinancing Group Australia) offering package discounts of 0.90% to 1.00%.
With some fixed rates being offered at the same level as (or lower than) variable rates, borrowers appear to have little to worry about by opting for a fixed rate mortgage or part fixed rate mortgage. At the time of writing a prominent Sydney Mortgage Manager (CommunityBE$T) was offering a market leading 2yr Fixed Rate of 6.86% (For more info contact our Finance Centre on 1300 448 911).
Borrowers may have to pay a new establishment fee if changing lender to obtain the most suitable fixed rate, but they may end up with a fixed rate loan that has a lower variable rate than they are paying now and if rates do move up this year as predicted, they could well be further ahead.
Tip from Mortgage Brokers Australia:
Borrowers need to remember that, fixed rate homeloans are generally inflexible i.e. Monthly payments cannot be varied and there is no redraw or offset facility.
Borrowers need to note that fixed rate mortgages have different characteristics and features than that of variable rate mortgages and to avoid any problems that might arise from the inflexibility of a fixed rate and/or applying a fixed mortgage interest rate to the whole of their mortgage, they should seek advice from a mortgage planner or Mortgage Brokers Australia that has extensive mortgage broking experience.
A popular option is that of a Split Loan (part variable and part fixed) which offers some protection from rate increases and allows additional payments to be made into the variable portion. Being able to make extra repayments is an important facility as these payments serve two purposes, they create a surplus that can be called upon in emergencies and they speed up the repayment of the loan reducing the amount of interest payable. 48 per cent of home loan borrowers make extra repayments on their homeloans.
If you would like to discuss your fixed rate homeloan options and/or find out more about the Community Best Home Loans 2yr fixed rate of 6.86% or Refinancing Group Australia’s 0.90% discounts , please contact a Finance Centre Consultant on 1300 448 911.
“Get the right advice about Mortgage Interest Rates”
Refinancing Group – Mortgage Brokers Australia.