Money Property Fixed-rate mortgages drop below 3 per cent but borrowers hold out for more
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Fixed-rate mortgages drop below 3 per cent but borrowers hold out for more

Borrowers can now lock in sub-three-per-cent rates for up to five years. Photo: Getty
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The Reserve Bank’s decision to hold the official cash rate at 1 per cent means mortgage rates probably won’t budge in September.

But borrowers still have plenty to cheer about.

According to comparison site InfoChoice, there are 22 three-year, fixed-rate home loan products offering rates below 3 per cent, and four four-year, fixed-rate home loan products offering sub 3 per cent.

At 2.79 per cent, the home loan product with the lowest fixed rate is Reduce Home Loans’ three-year Home Owners Dream loan.

RACQ Bank and Pacific Mortgage Group are close runners-up, offering 2.80 and 2.94 per cent on three-year, fixed-rate mortgages respectively.

And Greater Bank, St George, Bank of Melbourne and Bank of South Australia have dropped their five-year fixed rates below 3 per cent, too. 

According to Canstar, lenders have now made 585 cuts to variable-rate home loans and 1143 cuts to fixed-rate loans since the June RBA rate cut.

InfoChoice CEO Vadim Taube said it was “amazing to think that a young couple buying their first home can lock in these extraordinary low rates”.

And for anyone with a home loan around 4 or 5 per cent, the incentives to compare and refinance to a cheaper rate are now all but irresistible,” he added. 

For the time being, though, most borrowers are resisting the allure of fixing their mortgage at today’s current low rates, as they believe lenders will slash rates even further.

According to Mr Taube, that’s because Reserve Bank governor Philip Lowe has repeatedly said he will take the official cash rate below 1 per cent if the economy fails to pick up.

Most borrowers are sticking with variable rates, despite the long and low fixed rates on offer, according to search trends on InfoChoice,” Mr Taube said.

If the majority of economists are correct, the RBA will cut rates by 0.25 percentage points in both November and February, bringing the official cash rate to a record low 0.5 per cent.

The major banks won’t pass on the full benefits of those rate cuts, partly because the interest rates on their savings accounts are already close to zero.

But Canstar executive Steve Mickenbecker said mortgage rates would still “probably have to come down a little bit”.

“Will it be the 0.5 [per cent] that people are tipping for the cash rate? Well maybe, maybe not,” Mr Mickenbecker said.

“But it’s not about trying to pick about the absolute bottom. It’s about getting surety in your repayments … because the average borrower is not an interest-rate speculator.

“And if you can lock in your repayments at 2.99 per cent for five years, that’s not bad to be honest.”

Rather than scramble to find the home loan with the lowest rate, borrowers should look beyond the headline interest rate and find a loan that best suits their financial circumstances, Mr Mickenbecker said.

For example, most fixed-rate loans don’t offer a redraw or offset facility, and come with restrictions on additional repayments, which prolong the length of the mortgage and consequently increase the total interest paid.

Mr Mickenbecker said borrowers should take this into consideration before signing up with a new lender.

And he also encouraged borrowers to consider fixing a portion of their mortgage rather than the whole amount, so that they could enjoy a degree of certainty without forgoing the right to make additional repayments.

“You could put 70 or 80 per cent into fixed rate, which does lock in your repayments, but leave that extra 20 or 30 per cent in a variable rate, which gives you the flexibility to repay that amount,” Mr Mickenbecker said.

“Now, how many people would expect to pay more than 20 per cent additional in the first three or five years of a loan? Probably not that many, so you could probably do it comfortably with a 80:20 mix.”

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