Australians are being warned against diving in to fixed rate home loans despite the Commonwealth Bank sparking a price war and slashing its five-year rate.
The nation’s biggest lender sliced its five-year fixed rate to a record low 4.99 per cent on Wednesday, with National Australia Bank and Westpac quickly following suit to match their rival.
NAB also cut its three and four-year rates to further below the other major banks, sending them to their lowest level in 20 years.
But non-bank lender Mortgage House went one step further and cut its fixed rate to 4.97 per cent.
The cuts have sparked suggestions of a price war to benefit borrowers.
CBA said its rate cut would help more Australians buy their own property.
“This is a great opportunity for customers to lock in an extremely competitive rate for five years,” said the bank’s executive general manager of retail products Lyn Cobley.
CBA’s reputation has been damaged in recent times by a Senate inquiry into fraud involving its financial planners.
Canstar senior financial analyst Mitchell Watson cautioned that people should be aware there can be hefty costs if they break or repay a loan before a fixed rate period is up.
“You may be up for break costs which, depending on the market situation at the time or market conditions can be quite a large sum or can be a small sum,” he told AAP.
“If they are looking to lock it in, they really need to be sure that they don’t anticipate any changes over the next five years in their personal financial situation.”
Examples included repaying the loan if you were moving house and upgrading or adjusting your finances because of a growing family or another reason.
He said while the number of borrowers locking in fixed rather than variable rates in the past two years had increased, it had recently been on the wane and they tended to go for one to three years rather than a five-year term.
“I guess we’re at a point now where the outlook is for rates to be on the increase,” Mr Watson said.
Finance comparison and review website Mozo’s director Kirsty Lamont said that she expected longer term fixed home loan rates to tumble across the board after the Reserve Bank recently hosed down expectations of rate rises in the next year.