Experts split on whether to fix

OWNER-occupier mortgage customers should carefully weigh up whether now is the right time to fix their loan, experts say.

The Reserve Bank of Australia board meets tomorrow for the second time this year and it is strongly tipped the cash rate will stay on hold at 0.75 per cent.

Mortgage rates for those living under their own roofs continue to remain low; in some cases they are as low as 2.69 per cent for variable interest rate deals.

For three-year fixed rates the cheapest offers are only slightly higher, at 2.79 per cent.

Finsure managing director John Kolenda, who manages companies including 1300HomeLoan, said borrowers would probably be best to hold off fixing at the moment.

“I don’t think we are at an inflection point where there’s a likelihood that rates will rise,” he said. “The RBA is more likely in the short-to-medium term to be reducing rates, which will probably be a better outcome for consumers to look at those options.”

Mr Kolenda said, unlike fixed-rate loans, variable deals often gave customers no restrictions on how much extra they could pay off their loans, which many were doing to get ahead while rates were low.

“A lot of fixed-rate products have limitations that they don’t allow the customer to pay any more than the minimum principal and interest repayment, or a certain percentage over and above the P & I payment,” he said.

However, Mr Kolenda said for investors it was a different ball game, and many wanted the certainty of knowing what their repayments were, resulting in fixing being more appealing.

Home Loan Experts managing director Otto Dargan said there were “big differences” between fixed rates offered by different lenders so it was important to look around at what was on offer.

“Some lenders are offering additional discounts by negotiation, so it pays to shop around or use a mortgage broker,” he said. “Right now there are many fixed rates, particularly for two to three years, that are well below the variable rates being offered.”

However, with the ongoing coronavirus sweeping the world, Aussie chief executive officer James Symond said fixed could be the answer.

“With interest rates at historically low levels and greater uncertainty in the world economy, amplified by the coronavirus, borrowers could consider fixing part or all of their mortgages,” he said.

“The RBA’s cuts over the past several months have resulted in several lenders dropping their home loan interest rates and offering incentives in a very competitive market.

“Borrowers should get expert help from a mortgage broker to weigh up their options, understand their circumstances and keep an eye on the great deals currently available.”