Monday, April 6, 2009

Really? This is the best time to fix mortgage rates?

Fixed Rates: Lock it in, Eddie

According to the experts, yeah.. In the article Homebuyers shunning fixed-rate mortgages by
Colin Brinsden April 6, 2009, "Home buyers have all but given up on fixed-rate home loans in anticipation of the Reserve Bank of Australia (RBA) cutting interest rates further, banker and insurer Suncorp says."

Suncorp on Monday showed that only one per cent of its customers took out a fixed rate home loan in February compared with 42 per cent a year earlier.
However, mortgage broker the Loan Market Group said now was the time to be considering a fixed-rate mortgage. It says fixed rates have already started moving up, even though official rates are expected to be lower this year. Fixed-rate mortgages are based on wholesale market interest rates, while standard variable rates are usually led by official interest rate decisions.

"Many consumers are unaware that the variable rates move differently to fixed rates and by the time variable rates have bottomed they have missed the best opportunity to fix," Loan Market Group executive director John Kolenda said.

"If you are able to secure a great fixed rate in the high four per cent or low five per cent range for a three-to-five-year period then you should seriously look at it." Mr Wasmund said Suncorp's standard variable rate stands at 5.9 per cent, while a three-year fixed rate sits at 6.39 per cent. Someone taking out a $250,000 mortgage over 25 years would be paying an extra $904 per annum to fix.

"But the benefit is they do have some surety in terms of how much they have to find each month and some protection in the form of a reasonable safety net should interest rates rise again," he said.

He said it is a different situation for customers with existing fixed-rate loans as they need to assess whether break fees to exit their loan are going to be recouped in the longer term if official interest rates keep falling and stay low.

"If they chose to move to a lower variable rate, the savings wouldn't actually kick in until they'd covered the break fee associated with exiting their current loan, so interest rates would have to stay low for a considerable amount of time for any advantage to be realised."

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