Debating fixed vs variable in the cash rate calm

Now there is little cost difference between the average fixed term home loan interest rate and the average variable interest rate, deciding between them is even more difficult.


July 05, 2011

Now there is little cost difference between the average fixed term home loan interest rate and the average variable interest rate, deciding between them is even more difficult.

Add to this an eighth month of a stable 4.75% cash rate, announced today by the Reserve Bank, and a wide array of attractive new home loan deals. You can see why potential borrowers and refinancers have the fixed versus variable equation firmly planted top of mind.

An average of only 0.1% separates the two home loan rate types today, according to lender data from Mortgage Choice, Australia's largest independently-owned mortgage broker.

Company spokesperson Kristy Sheppard said, "It's unsurprising we saw increased demand for fixed term home loans in June. Now fixed and variable interest rates are almost on par, choosing between them or deciding to split the loan over both types is an even greater challenge."

"The big plus of variable rate loans is their more flexible nature, which applies to features as well as interest rate. The latter can be a negative in an economy set to boom because that's a ripe environment for higher rates. On the other hand, the big plus of fixed loans is their guaranteed steady repayments but they are priced a little higher and are more restrictive.

"As Australia's lenders do their best to attract and retain customers, there's a tempting range of home loan offers of both the fixed and variable variety. And, though there is plenty of cash rate movement speculation, it's been stable for eight months now. Deciding on rate type is a daunting choice people don't want to get wrong and unfortunately there is no right answer.

"The major questions for confused borrowers are: how much do you value a guaranteed steady repayment level, how much do you need home loan flexibility, how will you cope if you go variable and rates rise and how will you feel if you fix then interest rates fall during the fixed rate term?"

To make things a little clearer, Mortgage Choice says the pros and cons of each include:

Pros

Fixed

Variable

Steady repayment level for the fixed term

Lower repayments if interest rates fall

Ease of longer term budgeting

Slightly lower interest rate

Peace of mind

More loan features available (usually)

 

Cons 

Fixed

Variable

Slightly higher interest rate (currently)

Higher repayments if interest rates rise

Fewer loan features available (usually)

Can make longer term budgeting a challenge

Variable rates may fall over the fixed term

Unease may arise with interest rate speculation

 

For home loan tips, trends, facts, data and other information, visit Facebook.com/MortgageChoice or Twitter.com/MortgageChoice. Or, call 13 MORTGAGE.
 


For further information or to arrange an interview, please contact:

Belinda Williamson      
Mortgage Choice Corporate Affairs     
(02) 8907 0472 / 0407 416 124  
belinda.williamson@mortgagechoice.com.au


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