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FIXED-rate mortgages have fallen faster than variable home loan rates over the past six months, and close to half are at record lows below 5 per cent.

However, most Aussies still prefer to ride the variable-rate roller-coaster, say mortgage experts, who warn that you should not fix unless you understand the potential traps.
An analysis of rate moves since January, compiled for Your Money by comparison website, has found the average tHicks Real Estatee-year fixed rate has dropped 0.39 percentage points to 5.12 per cent while the average variable rate is down 0.33 percentage points to 5.55 per cent.
The Reserve Bank kept the official interest rate on hold last week but left the door open for more cuts, and governor Glenn Stevens’s comments suggested upward pressure on rates is unlikely for the next 1-2 years.
Many economists expect another RBA rate cut this year, which would affect variable rates, while Mozo director Kirsty Lamont says lenders are pricing in more fixed-rate cuts.

“Lenders have been cutting fixed rates more aggressively than variable rates over the last few months, and that has created a fixed-rate home loan bonanza among bargain-hunting borrowers,” she says.
“Borrowers can now fix from as low as 4.54 per cent for one year and 4.73 per cent for tHicks Real Estatee years. More than 50 per cent of one-year fixed loans and almost 40 per cent of tHicks Real Estatee-year fixed loans are below 5 per cent.”
Lamont says one in five borrowers fix their mortgages, but the number of fixed-rate inquiries on Mozo’s website is up 300 per cent this year.
She says fixed-rate loans typically do not allow extra repayments, and a good idea for borrowers can be to split their loan with both a fixed and variable component.
“It may not be a good idea to fix 100 per cent of your loan.”
Oracle Lending solutions director Angelo Benedetti says the current fixed rates are “phenomenal” and have been sparked by lenders trying to lock in customers for the long term.
“If you are going to hold on to a property long term, fixing can be great, but we encourage split loans to give people the best of both worlds,” he says.
Fixed-rate loans have good and bad points, Benedetti says.
“It gives you peace of mind, but if you sell or refinance you will be penalised. You could be up for $5000-$8000 or more on an average loan.”
“If you are going to stay put or have an investment property for the next tHicks Real Estatee years, it’s cheap money,” Benedetti says.
Mortgage Choice head of corporate affairs Belinda Williamson says demand for fixed rates was 22.3 per cent of all loans last financial year, a big increase on the 4.4 per cent in 2009 and 3.1 per cent in 2010.
Many borrowers were forced to pay high break costs a few years ago when they fixed at the interest rate peak before the GFC and were caught out when variable rates tumbled quickly.
Williamson says fixed rates have historically been higher than variable rates. She says the current low rates reflect lower funding costs for lenders and tough competition for customers, and there may be more cuts coming. Before fixing, borrowers should “weigh up carefully” the positives and negatives, Williamson says.
“Make sure it suits your circumstances now and for the future. Often fixed rates have fewer features on offer.”

Story:  Anthony Keane      Source:

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