Lenders are trimming rates on fixed-term home loans, but a leading economist has warned there could be downsides to taking one out now.
There have been rate cuts across 275 since the beginning of this year, according to comparison site Mozo. It said most of the cuts were to three-year fixed-term home loans.
Mozo said smaller lenders are leading the charge, with cuts of up to a full percentage point.
Fixed-term loans are currently between 6.48 per cent and 6.54 per cent depending on the length of the term, according to its analysis. Meanwhile, the average variable rate home loan is 6.83 per cent.
Since the start of the year, a number of fixed-term loans have started to decline. Source: SBS News
Mozo spokesperson said Rachel Wastell said the bulk of fixed rate cuts were in March.
“Lowering those rates helps attract borrowers,” Wastell said.
The Reserve Bank of Australia’s (RBA) cash rate target is at 4.35 per cent, a 12-year high, up from record lows in 2022. It raised rates to curb spending and bring inflation back to its target band between 2 and 3 per cent.
It has left the cash rate target on hold since November amid signs of cooling inflation, and while it has not ruled out further hikes, some banks forecast cuts could begin from September this year.
Many banks will try to predict the RBA’s actions and adjust what they offer customers accordingly to provide an incentive for them to bank with them, said AMP chief economist Shane Oliver.
He believes we are “at or very close to the top of the mortgage cycle”, and says that’s worth considering when researching mortgage products.
“The only argument [for a fixed-term mortgage] is if you absolutely cannot handle a higher rate. Any more than that it’s unaffordable,” Oliver said.
With banks reducing their home loan rates, many banks think the RBA will reduce their cash rate.
“A variable rate will likely end up lower over the term of the fixed rate.”
He also said that interest rates aren’t the only consideration potential borrowers need to take into account.
“You’ve also got to take into consideration your income and if that will grow over time,” he said.
Over the past two years, many Australian households have had to cut back on spending. While most have kept on top of their mortgage repayments, the RBA’s latest financial stability review report found borrowers with limited savings were more likely to fall behind on their loan repayments.
When will the RBA reduce the cash rate?
The RBA forecasts inflation will return to its 2 to 3 per cent target band next year, and to the midpoint in 2026.
Financial markets generally predict the RBA won’t cut rates until September at the earliest.
Oliver is more optimistic.
“We think it could maybe a little bit earlier, maybe June or August,” he said.
This article is general information. Please see a professional if you need financial advice.
>>> Read full article>>>
Copyright for syndicated content belongs to the linked Source : SBS – https://www.sbs.com.au/news/article/rates-are-being-cut-on-these-home-loans-but-should-you-get-one/jvyfj2y23
