Some interesting new data sheds interesting light on the eternal debate over whether to have a variable or fixed home loan.
Reserve Bank of Australia data for August shows owner-occupiers on three-year fixed loans were paying, on average, 1.26 percentage points less than those on the discounted variable rate.
However, as the graph shows, these things move in cycles. The gap between fixed and variable rates might start closing, with the Reserve Bank signalling it will start increasing official interest rates once the economy strengthens.
If you’re wondering whether to go fixed or variable, here are three things to consider:
Does your variable rate have features a fixed loan might not have?
Do you want the repayment certainty that comes from a fixed loan?
Have you considered a split loan, which is part variable and part fixed?
Have you been squirreling away money during the latest round of lockdowns? If so – join the club.
Australian households have been saving an average of 9.7% of their income, according to the most recent data. However, the Reserve Bank has forecast that the saving rate will increase to about 15% by the end of September.
Part of the reason people have been saving more is because they’ve been stuck at home, which has meant they’ve had fewer opportunities to spend money in shops.
The Housing Industry Association recently reported that house new house sales are performing strongly – partly “due to increased household savings during the pandemic”.
With brokers now legally required to act in the best interests of borrowers – something banks aren’t required to do – borrowers have been turning to brokers in increasing numbers.
Mortgage brokers settled 59% of all new home loans in the June quarter – a record market share for brokers in the June quarter.
That compares to a market share of 57% in the June 2020 quarter.
Last year, ASIC, the financial services regulator, introduced the best interests duty, which obliges brokers (but not banks) to act in their clients’ best interest when providing home loan advice.
The Mortgage & Finance Association of Australia said the increasing popularity of brokers reflects “the ever increasing trust and confidence consumers have in their broker and the unrivalled best interests duty a mortgage broker provides”.
When you visit a lender, you will be told only about that lender’s products. But when you visit a mortgage broker, you will be able to compare home loans from a range of institutions.
Please feel free to visit our website to see the latest low-interest rates available at Search Mortgages. If you have any questions or would like to catch up any time to discuss your home loan please let me know. I am available to do either phone or in-person meetings.
All the best, stay safe and enjoy Spring
Search Mortgages is authorised as a corporate credit representative (Corporate Credit Representative Number 417522) to engage in credit activities on behalf of BLSSA Pty Ltd (Australian Credit Licence number 391237) ACN 117 651 760 Disclaimer. This newsletter does not necessarily reflect the opinion of the publisher. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the publishers, authors nor their employees, can be held liable for any inaccuracies, errors or omission. Readers are advised to contact Search Mortgages or an accountant before making any investment decisions and should not rely on this newsletter as a substitute for professional advice.