Australians are switching back to variable rate home loans as the cash rate sits comfortably at its record low for the foreseeable future.
The cash rate has been at 2.5 per cent since August last year and doesn’t look likely to be moving any time soon, with many economists expecting the Reserve Bank to keep it on hold for the rest of the year.
Mortgage Choice spokesperson Jessica Darnbrough said people were now drifting back to variable loans after a jump in fixed-rate mortgages last year.
People are starting to gain more confidence that the RBA is going to leave rates on hold for at least the foreseeable future and if they do raise rates, it’ll only be marginally.
“We saw a huge peak in November and December towards fixed-rate loans,” Ms Darnbrough said.
“We were seeing a lot of lenders cutting their fixed rates, making them enticing for borrowers and people were unsure of what the RBA was going to do next so they saw that as an opportunity to fix part or all of their mortgage.
“But now we are seeing more and more people drift back towards variable rates.
“People are starting to gain more confidence that the RBA is going to leave rates on hold for at least the foreseeable future and if they do raise rates, it’ll only be marginally.”
Splitting loans into variable and fixed parts remained a popular option for homeowners, Ms Darnbrough said.
Figures from the Australian Bureau of Statistics show Australians have typically favoured variable-rate loans – in 2010, more than 95 per cent of new home loans were variable.
Variable-rate loans will save you money in the long term, but there are pros and cons to both types of loans, Canstar research manager Mitchell Watson said.
“Historically, sticking with a variable rate will inevitably save you money over time,” Mr Watson said.
“At this point, variable and fixed rates are below their mid-term averages, interest rates are low so there’s less incentive to fix.
“But the fixed rate market does pre-empt changes in the cash rate, so people should look to lock in before there is a definite decision on the cash rate.”
Michelle Hutchison from comparison website finder.com.au said borrowers opting for a variable loan should be wary of discounted rates.
“Some lenders, including the major banks, market their home loans based on a discount off their standard variable rate, but the rate you end up with could be much more than other home loans in the market,” Ms Hutchison said.