Bright Spots With Fixed Rates – By Jenna Ford
In the midst of global financial volatility there are bright spots for those of us with mortgages.
Have you seen what’s happening to the fixed rates being offered by lenders?
Last month we alerted you to opportunities available in the discounted variable rates that lenders have been offering to attract more business.
This month we alert you to the fixed rate offerings, especially 1, 2 and 3 year rates which have been reducing. These rates are now on a par, and in some cases considerably less than the current variable rates on offer.
One can only assume that this change in fixed rates reflects the lenders’ view that global financial uncertainty will prompt the Reserve Bank to lower the bank cash rate, or at least keep it on a plateau. This could mean that in the medium term, rates will remain steady while global financial uncertainties remain.
Therefore, do you fix or remain variable? That is the question!
Whilst we cannot advise you on which way to go, we can highlight some important factors to consider when making the important decision.
A fixed rate can you provide you with more certainty on “budget planning” and also potentially improve your cash flow position (Especially If you are changing from a higher variable rate to a lower fixed rate).
For example: If you have a variable rate of 7.10% (most banks standard variable rate is 7.80%) and are thinking of moving to a 6.42% fixed rate (2 years) you would save $2,040 each year on a loan of $300,000.
However, be cautious and truly compare. Look at the comparison rate and not just the advertised fixed rates. The comparison rate bundles the upfront and ongoing fees charged by banks in with their advertised rate and this gives you a truer picture of what that loan is costing you. Whilst this may seem confusing, our team can certainly run a product comparison for you that outlines both the market rate and the comparison rate for you to consider.
The second warning is that sometimes there are other conditions attached to achieving a low fixed rate. For example, the rate may only apply if you are refinancing as a new customer to that lender, as opposed to fixing an existing variable loan with them. The move to a new lender may be advantageous in giving you a better deal and we also urge you to be cautious with applying to ensure you will qualify for the rate on offer and not negatively impact your credit score.
The third warning is how a fixed rate may potentially impact the flexibility, decreasing the flexibility of a loan. In this instance, some clients may consider fixing “part” and not all of their loan facilities to ensure buffer accounts remain fully functional.
The lenders are competing on rate and probably will continue to do so in the short term. Here are some examples of good rates in the current market place:
Chan & Naylor’s in house wholesale funds are at 6.42% for a 2 year fix (for full doc’s loans up to 75% of the value of the security property). As this lender accepts security property held in our Property Investor Trusts this is great news for those of you with trusts holding the security property your loan is against.
Please note that all below lender rates quoted are subject to standard credit assessment criteria.
Homeloans Limited (Award Winning non-bank lender of the year) have a 3 year fix at 6.49%
ING have a 3 year fix at 6.39% but beware as their comparison rate is at 6.95%.
Citibank 6.45% for a 3 year fix (plus a 60 day rate lock fee set at ZERO)
There are also a few competitive options in the 5 year fix band with AMP dropping their 5 year fixed rate by 0.85% to 6.99%.
ING are also offering 6.99% for a 5 year fixed rate at the moment (comparison rate is between 7.09% and 7.10% depending on the state you live in.)
Please contact our expert team to find out how you could potentially benefit from current market uncertainties and lender competition. We can also provide you with lender comparison and which offers you could potentially qualify specific to your own individual position.
Align with the experts; align with Chan and Naylor Finance.
If you intend to rely on any of the information in this document to satisfy liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law, you should request advice from a registered tax agent. This information does not take into account your individual objectives, financial situation and needs. You should assess whether the information is appropriate for you and consider talking to a financial adviser before making an investment decision. The information contained in this document is given in good faith and is believed to be correct at the time of publication, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by Chan & Naylor, its officers, employees, directors or agents.