Fixed rates coming back into fashion

10/06/2010

The gap between variable and fixed rate mortgages is closing and borrowers, usually reluctant to pay a premium for interest rate certainty, are starting to move into fixed rates. The latest mortgage market data from broker Mortgage Choice, released yesterday, shows a sharp increase in the number of borrowers opting for fixed rates in May.

Fixed rate loans made up 3.26 per cent of the broker’s loan approvals in the month, compared to 1.77 per cent in May. Australian Bureau of Statistics housing finance data, also out yesterday, shows a similar trend. Mortgage Choice says the cost difference between the average variable rate of 7.05 per cent and the average three-year fixed rate of 7.77 per cent is $137 a month. More home buyers are coming to the view that that is a reasonable insurance premium to hedge against more rate increases.

InfoChoice.com.au data shows that last week 11 lenders cut their fixed rates. St George cut its two-year rate by 40 basis points (to 7.14 per cent), Westpac cut its three-year rate by 40 points (to 7.39 per cent) and BankWest cut its three-year rate by 15 points (to 7.64 per cent).

Source: BankingDay