The dilemma, fix interest rates, or stay with variable?
The trend in lower fixed rates suggests that variable rates will reduce significantly in the next year, however, the Reserve Bank is reluctant to join the party, so do you take the lower fixed rates now or wait?
Just in time for the traditionally busy spring auction season, banks have been trying to outdo each other with deals on fixed rate loans.
A clutch of banks – St George Bank, Credit Union Australia and ING Direct – yesterday became the latest to cut fixed-rate loans. This follows moves from nearly all the big banks in recent weeks, with some making two separate cuts to their fixed-rate offer.
Money markets and some economists – although not all – are betting that the Reserve Bank could cut official cash rates before the end of the year as part of a measure to protect against a slowing global economy.
This has created what is described as an ”inverted yield curve”, an unusual situation where the bank bill swap rate is running at a discount to the cash rate, allowing banks to lock in fixed funding at a cheaper price.
St George is now offering a three-year fixed-rate loan at 6.39 per cent. CUA yesterday cut its three-year fixed-rate home loan by five basis points to 6.34 per cent. Pricing on fixed rates is now running at a substantial discount to variable loans, which currently average 7.1 per cent.
Still, fixed rates provide a dilemma for borrowers: lock in interest rates at present levels for the next few years or take a punt on variable interest rates falling and extract further savings.
But with as much as 50 basis point cuts on fixed rates since the start of August, analysts say a rare opportunity has opened where you can now ”beat the bank”.