Balloon with percentage symbol
Canstar recommends fixed rates Source: Karolina Grabowska from Pexels.
  • According to Canstar, the lowest variable rate currently available is 4.44% (4.35% comparison rate).
  • Borrowers could save money by opting to take out a fixed rate mortgage if RBA puts rates up 0.75%.

The string of rate hikes from the Reserve Bank of Australia (RBA) is pushing mortgage rates up which is now making fixed rate loans more attractive according to an expert.

According to Canstar, the lowest variable rate currently available is 4.44 per cent (4.35 per cent comparison rate), compared to the lowest two-year fixed rate of 5.19 per cent (5.11 per cent comparison rate).

If the RBA continues to hike interest rates by a further 0.75 per cent, which is what the market is currently pricing in, then borrowers could save money by opting to take out a fixed rate mortgage at current levels.

Fixed rates are appealing

Effie Zahos, Canstar’s Editor-at-Large and money expert said, “Plenty of homeowners have timed locking in their mortgages perfectly.

“Even those now rolling off fixed rates onto higher variable rates have had a good run over the past couple of years.

“Having said that, choosing the right time to lock in can be difficult” she said.

NAB’s latest interest rate forecast predicts the cash rate will reach 4.10 per cent by May, which means the Reserve Bank could have three more 0.25 per cent monthly rate rises still to come.

This would push repayments on a $500,000 loan over 30 years up to $3,320 per month from $2,103 in April 2022 – an increase of 58 per cent.

Based on the assumption that variable rates move in line with NAB’s cash rate forecast, Canstar’s analysis shows a borrower with a $500,000 loan over 30 years on an average variable rate of 5.83 per cent could end up paying $60,343 in interest in two years time while reducing their loan amount by approximately $12,474.

Security for borrowers

Ms Zahos said borrowers will need to weigh up how far the RBA might hike rates.

She said, “Borrowers considering fixing all or part of their loan need to consider what discount is on offer to lock in and how many rate hikes until they are on par again with the variable rates, keeping in mind if you do lock in for a long time and rates fall you may miss out on that downward swing.

“Right now, some homeowners would be able to lock in their loans without paying more than what the average variable rate is.

“If rates continue to rise, not only are they paying less now, but it gives them certainty for the fixed rate period.

“Of course, things can change and rate forecasts may not always ring true.”

According to Ms Zahos said, borrowers might be attracted to the prospect of having some security in the current rate environment: “Locking in is all about buying peace of mind and the certainty of knowing what your repayments will be each month for that fixed rate period.

“Traditionally, you would pay a premium for that, meaning you would pay a little more than what the variable rate is, but right now a window of opportunity exists to lock in for two years and pay less than what the average variable rate is” she said.

You May Also Like

Thinking of borrowing for a new home? We decode the home loan lingo and explore a common mistake

We take a look at everything from principal and interest to rates and more.

Beachside bargains: Top 10 NSW suburbs for downsizing under $1m

Discover NSW’s hidden gems where coastal lifestyles and housing affordability meet.

Mortgage stress saw a consecutive decrease across Australia despite high interest rates

Australia’s interest rates are currently at an eye-watering 4.35%, but levels of mortgage stress eased throughout November.