Why Fixed Housing Rates Can Cost More in the Long Run
As mortgage lenders continue slashing fixed home loan rates, Australia's financial comparison site RateCity warns availing even discounted rates can actually cost more for households in the long run.
As always, the catch with fixed rate home loans is that they revert to a variable rate after the fixed period, which can cost more in the long run, said Damian Smith, RateCity's CEO.
"For instance, if you took out a $300,000 home loan at the benchmark 3-year fixed rate of 6.52 percent now, you would pay around $2,030 in monthly repayments.
"However, in three years' time when your home loan reverts to the benchmark standard variable (at 7.79 percent if rates don't move) your repayments would rise by $245 per month,” he said.
Mr Smith explained “the decision to fix part, or all, of your home loan can be a tricky one and we typically advocate that a good time to fix is when long-term fixed rates are less than 1 percent higher than the standard variable rate.
"At the moment average 3-year fixed rates are 0.7 percent lower than the standard variable rate, so the window to fix is certainly open. And for those who spend an hour or two comparing fixed rates are likely to save thousands of dollars in just a few years," he added.