10-year fixed rate home loans: explained

0

Fixed rate home loans are growing in popularity, but the number of lenders offering 10-year fixed rate products is small – find out who offers them.

The popularity of fixed rate home loans has grown, with borrowers favoring payment security and banks offering tight prices.

According to ABS loan data, fixed rate loans accounted for only 13% of new home loans in March 2020. Fast forward to June 2021, and that figure is now 46%.

However, fixed rate loans for terms of up to 10 years are rare for various reasons. Having said that, there are a number of lenders offering long fixed loan terms.


Advertising

Buying a home or looking to refinance? The table below shows home loans with some of the lowest interest rates on the market for homeowners.


Which lenders offer 10-year fixed home loans?

There are decidedly few lenders offering ten-year fixed home loans in the Australian market. So far, the Savings.com.au market research had identified two at the time of writing:

A number of other lenders used to offer them, including other big banks, but historically low interest rates have made them unpopular with borrowers and lenders.

See also: The Potential $ 35,000 Cost of Breaking a Fixed Home Loan

Why are 10 year fixed home loans hard to find?

As you may know, variable loans have always been the home loan of choice in Australia. Until recently, even two to three year fixed rate loans were relatively unpopular, but have since gained market share. Yet anything more than a fixed term of five years is quite rare in Australia. But why?

If you know anything about the US financial market, you will find that 10 to 30 year fixed rate home loans are the preferred option, and “variable” or “adjustable” rate mortgages are often considered. like the devil.

Contributing Editor-in-Chief of Rolling Stone magazine and author of Griftopia, Matt Taibbi – who also covered the global financial crisis at length – said this about floating rates in the United States:

“Some Americans have been beaten and beaten again in the mortgage scam, up to three times. their taxes were used to “save the economy,” which in practice often meant buying toxic mortgages at cost from offending banks. – Matt Taibbi, via the Substack newsletter.

The popularity of variable rates in Australia is due to the fact that, in very simple terms, the wholesale borrowing structures of our banks are different.

In the United States, banks typically source their supplies from the 10-30 year bond market, while in Australia, banks borrow much more on the short term. Essentially, the Australian debt market has not evolved enough to allow local lenders to sell bundles of fixed rate long term loans to bond investors, so lenders are faced with long term loans at fixed rate on the balance sheet, which is quite unattractive.

This does not prevent home loans of borrowers in the United States from changing hands of lenders several times, but the original source remains the same. Because of the way banks borrow money, this makes 10 to 30 year rates in the United States relatively affordable, compared to what would be seen in Australia, where short-term fixed and variable rates prevail. in master.

Advantages and disadvantages of a fixed mortgage over 10 years

There are a few pros and cons with 10 year fixed rate loans.

Advantages

  • Money back guarantee: The bi-monthly or monthly repayment will not change for 10 years. This provides certainty, rather than having to worry about what is going on in the market.

  • Lock-in at the bottom of the rate cycle: Over the past few years, rates have bottomed out, so the argument might be “They can only go up, right?” “

  • Weather all rate increases: Any rise in rates as economic conditions improve triggers a wave of refinancing activity and potential concern among other borrowers. A difference of a few basis points could add hundreds to your repayment each month. You wouldn’t have to worry about it.

  • “Define and forget”: Depending on your financial knowledge, it can be easy to watch the market move like a hawk. With a 10 year loan, you can “set and forget” which is potentially a burden for some.

The inconvenients

  • Much higher interest rates: At the time of writing, interest rates on 10-year loans were up to three times the amount seen on discounted one-year fixed rates.

    • A 30-year, $ 400,000 home loan with a variable rate of 2.09% per annum could have a monthly repayment of $ 1,497, but at a typical 10-year fixed rate of 7.49% per annum, this repayment monthly could be $ 2,794.

  • Potentially significant break costs: If you get out of a fixed rate loan prematurely, you will usually have to pay a termination fee. Depending on the amount of your loan and the amount you have left over the life of your loan, this can add up to several thousand dollars.

  • Fewer lenders = less competition: Across the market there is a lot of competition with over 100 lenders vying for your attention. Market saturation fuels competition. With only two lenders, according to our market research, offering 10-year loans, there is much less competition.

  • No more loan restrictions:

    • Refunds: Fixed rate loans usually have additional restrictions on the additional amount you can repay on the loan. If you plan to prepay your loan, a 10-year fixed option may not be right for you.

    • To pay: Some – not all – 10-year fixed rate loans require larger deposits. This is a problem if you plan to enter the market earlier with, say, a 5% deposit.

  • Do you really know more than a lender? A fixed loan is basically a small bet between the borrower and the lender. You lock in a rate because you think the rates will go up, but do you really know more than a bank with its many economists? There’s a lot of thinking about interest rates, and there’s a good chance they’ll come out on top no matter what the market does.


Photo by Steven Ungermann on Unsplash

The entire market was not taken into account in the selection of the above products. Instead, a smaller part of the market has been envisioned, which includes the retail products of at least the Big Four Banks, the Top 10 Client-Owned Institutions, and Australia’s largest non-banks:

Products from some vendors may not be available in all states. To be taken into account, the product and the price must be clearly published on the website of the supplier of the product.

In the interest of full disclosure, Savings.com.au, Performance Drive, and Loans.com.au are part of the Firstmac group of companies. To learn more about how Savings.com.au handles potential conflicts of interest, as well as how we are paid, please click on the links on the website.

*Comparison rate is based on a loan of $ 150,000 over 25 years. Please note that the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as withdrawal fees and cost savings such as fee waivers are not included in the comparison rate but may influence the cost of the loan.


Source link

Share.

Comments are closed.