Is it Time to Lock in Your Home Loan Rate?

You might have noticed that fixed home loan rates are dropping lately. Many banks are announcing lower rates for fixed-term loans.But is it a good idea to lock in your rate now?

Some banks , for example, are slashing their fixed rates by up to 0.60 per cent. Some of their best fixed rates for homeowners will be as low as 5.79 per cent.

Sounds tempting, right? But here’s the catch: if you lock in a fixed rate now, you might miss out if the Reserve Bank of Australia (RBA) decides to lower the cash rate later in the year.

Fixed rates are good because they protect you from rate hikes, but they also mean you won’t benefit from any rate cuts.

Normally, when fixed rates start dropping (like they are now), it could mean that the market expects interest rates to go down. Banks usually don’t lower fixed rates unless they think it’s safe for them.

But here’s the thing: rates could be even lower in a few years. History shows that it’s often better to keep your options open and stick with a variable rate when rates are likely to decrease.

It all depends on whether you’re comfortable taking a chance with a variable rate or if you prefer the stability of a fixed rate.

The big banks are predicting rate cuts this year. Commonwealth Bank, for example, thinks rates could drop by the equivalent of three 0.25 per cent cuts by the end of 2024.

According to Compare the Market, three rate cuts of 0.25 per cent could save you $354 a month on a $750,000 loan.

While fixing your rate in 2021 might have saved you money during a period of rising rates, that trend seems to be over. If you lock in your rate now, you might end up paying more if rates drop later in the year.

It’s a personal decision, but think carefully before locking in a rate that could cost you in the long run.

I hope you enjoyed reading this article. If you would like my team and I to help you, please contact us for a free no obligation meeting.  - Chris Tolevsky