The best 3-year rates currently range from 6.70 to 6.99 per cent but the number of rates below 7 per cent is dwindling. This compares with the bank standard variable rate of 7.07 per cent and an overall market-average standard variable rate of 6.80 per cent. The best four and five-year rates start around 7 per cent with quite a few up to 7.20 per cent.
The bulk of one-year rates are currently between 6.6 and 7.0 per cent. The best two-year rates range from 6.69 up to 7 per cent. The fixed rates currently on offer are not nearly as attractive as they have been last year and earlier this year. But if official interest rates move up as many expect over the next 12 months, the best fixed rates locked into now may then look quite good.
The current choice between fixed and variable will depend on a borrower's circumstances but fixing at least part of your loan now below 7 per cent may be a good option for some borrowers. Some of the issues to consider are outlined below.
There is high competition in fixed rates these days which means there is significant variation in the market. It certainly pays to shop around with up to 1 whole percentage point difference at any one time between rates for a given fixed period. Consider bank, non-bank and credit union loans.
Does fixing really suit?
It's important to consider that fixed rate loans won't suit many borrowers. The cheapest home loan is not necessarily the one with the lowest rate, it's the one that allows you to pay it off soonest. The restrictions on extra repayments and early payout attached to fixed rate loans can make them very expensive in the long run. Every extra dollar paid off the loan early on saves $2 in interest by the end.
There is also the cost of switching to consider - charges vary but they can outweigh any savings on the rate.
Above all, remember fixed rates are always a gamble, especially over the longer terms of three to five years. You are committing to an interest rate for a period far beyond anyone's ability to predict rate movements. Trying to pick whether fixed or variable rate borrowers are going to come out ahead over this time period is always a matter of chance. A decision to fix should be considered as insurance against variable rises that might extend repayments beyond the limit of your finances.
So for those who value the certainty of knowing just what their repayments are going to be over the next couple of years, it may well be better to lock in now. Property investors and owner-occupiers on a tight budget, for example. And for those borrowers not in a position to make extra repayments or not likely to pay out their loan during the fixed term, fixed rates can be attractive.
A good alternative for many will be to fix part of your borrowings and keep the rest on a variable rate. But weigh up the costs of switching to this or any fixed arrangement with what you might save in interest.
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