With the uncertainty around the property market and values falling, homeowners and investors are firming up their property positions by locking in fixed interest rates.
Fixed interest rates are at the lowest rates we’ve seen in a very long time, and whilst there is speculation that the RBA may cut the cash rate further, many property owners think now is a good time to lock it in. Even if the RBA cuts the cash rate, as history tells us, there is no expectation that the banks will pass on the reduction to customers.
Fixed interest rates
The fixed interest rates offered by both the major banks and second tier lenders are incredibly good at the moment. As low as 3.49% for owner occupiers and 3.69% for investors, the certainty of having a fixed interest rate is becoming popular as property owners desperately seek some consistency and surety in an uncertain property market.
Fixing your interest rate can be a suitable option for some people, as the interest rate doesn’t rise or fall during your fixed rate period – essentially locking your repayments to a certain amount regardless of market changes.
Options for fixed rates can range from one to five years, however the interest rate varies depending on how long you fix your rate for.
Best fixed interest rates for owner occupiers
With access to over 40 lenders, mortgage broker Mint Equity will help you find the best fixed interest rate. Here are a few great options for owner occupiers. Rates are based on an LVR of 80% with a loan amount of $800,000.
1 year fixed interest rate – Principal and interest 3.64%
1 year fixed interest rate – Interest only 3.94%
2 year fixed interest rate – Principal and interest 3.59%
2 year fixed interest rate – Interest only 3.95%
3 year fixed interest rate – Principal and interest 3.49%
3 year fixed interest rate – Interest only 3.99%
4 year fixed interest rate – Principal and interest 3.89%
4 year fixed interest rate – Interest only 4.39%
Best fixed interest rates for investors
Here are a few great options for investors. Rates are based on an LVR of 80% with a loan amount of $800,000.
1 year fixed interest rate – Principal and interest 3.84%
1 year fixed interest rate – Interest only 4.14%
2 year fixed interest rate – Principal and interest 3.79%
2 year fixed interest rate – Interest only 3.79%
3 year fixed interest rate – Principal and interest 3.65%
3 year fixed interest rate – Interest only 4.29%
4 year fixed interest rate – Principal and interest 3.99%
4 year fixed interest rate – Interest only 4.19%
Uncertain times call for certainty
As housing prices have dropped significantly over the last 6 months, selling is no longer a viable option for many. Real Estate Agents are reporting that they are struggling to secure new properties for sale, and the ones on the market are struggling to sell. Homeowners are now seeking certainty around cost of funds rather than being subjected to the ups and downs of a variable interest rate.
Things to consider about fixed interest rates
Fixed interest rates are a good option for those who’s strategy is to hold onto the property for the short to long term as there are costs associated with ‘breaking’ a fixed interest rate period.
If you want to exit the loan, either by selling the property or refinancing to another lender or product, you can expect to pay penalties.
Fixed rate loans often don’t have the same level of flexibility as a variable interest rate structure. For example, you may not be able to make extra repayments and redraw them. Most lenders will not allow you to have an offset account, however having a fixed rate doesn’t mean you have to lock the whole amount into a fixed interest rate structure. You can still enjoy the benefits of a variable loan, whilst having the surety of a fixed interest rate.
Hedge your bets – fixed and variable
If you aren’t sure you want to fully commit to a fixed interest rate, you can split the loan into fixed and variable. For example, on an $800,000 loan, you can fix $400,000 and keep $400,000 as a variable component. Any ratio can be applied to a fixed or variable interest rate component. This option enables borrowers to have the benefits of the offset account on the variable interest rate loan, whilst knowing a portion of your repayments won’t change.
Talk to a mortgage broker
With so many lender promotions and interest rate discounts being offered at the moment, navigating the lending landscape is best done with an experienced mortgage broker like Mint Equity. Our services are free of charge and we provide all our customers with a comprehensive product comparison, so you can choose the right option for you.
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