Fix it fast! Where to get the best fixed-rate deals on the market

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Australia is in the midst of a fixed-rate frenzy. Uncertainty over RBA movements combined with some aggressive marketing by the banks spurred a dramatic increase in fixed rate products in late 2010 – a trend that has continued into 2011.
AFG, the nation’s largest mortgage broker, reports fixed rate loans accounted for 12.6% of all new mortgages in December – the highest figure for fixed rate home loans recorded since June 2008. Meanwhile, figures from Mortgage Choice reveal that the popularity of fixed rate loans steadily increased from 11.2% in November to 15.2% in December and 15.3% in January 2011.
Fixed rates are becoming more attractive as lenders continue to push up standard variable loan rates above and beyond RBA movements. CBA almost doubled the RBA increase to the official cash rate in November – raising interest rates on standard variable home loans 45 basis points, while ANZ, NAB and Westpac raised their rates 39, 43 and 35 basis points respectively. The new benchmark rate for the major banks is 7.79% - the highest it’s been since the start of the GFC.
Meanwhile, there are some interesting developments in fixed rate products. While more than 20 lenders announced increases to their three-year fixed rates since the start of November, almost six lenders dropped three-year fixed rates in the same month.
ANZ reduced its three-year fixed rate by 46 basis points to 7.10% - making monthly repayments on a $300,000 mortgage $2016.
On the non-bank side, WA’s Unicredit is also offering an initial interest rate of 7.10% on its fixed three-year product, while Heritage’s three-year fixed rate product sits at 7.15%, making monthly repayments $2026.
The benefits of fixing your mortgage rates include having set monthly payments for the period that you fixed the loan, and protection against increases to variable rates.
But the downsides may include restrictions on extra repayments, heavy exit fees, and the possibility you could end up paying more should variable rates go down.
Is it right for you? That depends on how much you value certainty versus flexibility. If you’re planning to sell your property, make a lump sum repayment or refinancing your loan, then it might work against you.
But if you’ve already decided that fixing is a good option for your circumstance then deciding when to fix is the next step. Locking in a good rate in a rising rate environment can work in your advantage. Just remember that in three years - which is generally the shortest term fixed rate worth applying for – anything can happen.
Both ANZ and CBA are forecasting the Reserve Bank’s cash rate will rise from its current level of 4.75% to 5.5% by the end of the year, while NAB is tipping it to rise to 5.25% and Westpac has only indicated there will be one more rate rise (but did not speculate by how much).

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