Fixed-rate mortgage loans on the rise: will variable rates follow?


Fixed mortgage rates are on the rise, and new figures confirm this. According to Mozo data, about a quarter of the lenders in our database raised their longer-term offers this year.

Our crisis in numbers reveals that at least 25 out of 99 lenders have increased their fixed rates since January, the majority being for terms of 4 or 5 years.

UBank is one of the latest providers to join this trend. The online lender last week raised its 3-year fixed rates from 1.75% (2.22% comparison rate *) to 1.85% (2.24% comparison rate *). Despite this 10 basis point increase, UBank still maintains its lead as the lowest 3-year fixed rate for owner-occupiers in the Mozo database.

Westpac and the rest of the Westpac Group (BankSA, Bank of Melbourne, St. George) also took similar action with their 4- and 5-year fixed rates last week, raising those offers by 30 basis points.

Mozo’s senior research analyst Mitchell Pollard said this new upward trend in fixed rates comes in light of Australia’s improving economic outlook.

“Over the last year or so, we’ve seen banks set their fixed rates quite aggressively so that they can keep their customers and lock them in for 3, 4, or 5 years at once. They felt secure knowing that inflation and therefore the cash rate would stay low for a long time, ”he said.

“But fast forward to today and a quarter of lenders [in the Mozo database] have adjusted their long-term rates to some extent. It is not huge sums, but it is a sign that the banks are banking on a brighter future in four or five years, thanks to the vaccines and the many stimulants here and abroad.

“That’s basically what fixed rates are – they’re a bet on how interest rates will move in a few years.”

So, will variable rates follow?

Unlike fixed rates, variable rates can change at any time, whether based on the spot rate or based on the bank’s competitive analysis. With inflation still very low at the moment, Pollard says it may be several years before variable rates rise again.

The Reserve Bank has previously said it will not increase the cash rate until inflation is “durably within the target range of 2-3%”. This condition is unlikely to happen anytime soon, given that the Consumer Price Index (CPI) – a measure of inflation – rose 0.6% less than expected in the March quarter.

However, Pollard says the fixed rate hikes are a first indication that variable rates may start to rise in four or five years.

“With variable rates, banks don’t run the risk of losing interest margins to customers stuck at a low rate in a rising market. The only risk for them is that borrowers will turn to a more competitive lender. So right now the banks are in no rush to raise variable rates until the cash rate is adjusted upward, ”he says.

To repair or not to repair?

If you’re worried that mortgage rates will rebound from all-time lows, maybe now is the time to consider setting your rate.

Here’s a breakdown of the average fixed rates in the Mozo database currently for homeowners who repay principal and interest:

  • Average fixed term 1 year: 2.33%
  • 2-year fixed-term average: 2.28%
  • 3-year fixed-term average: 2.32%
  • 4-year fixed term average: 2.46%
  • 5-year fixed-term average: 2.68%

Just be aware that if your lender increases their fixed rates before you hit settlement, you will benefit from the new higher offer. Some providers offer a “rate lock-in” feature that guarantees you the current rate for 60 or 90 days, but this benefit can cost hundreds of additional dollars.

Meanwhile, if you are also looking for more flexibility, such as a compensatory account or additional repayments with no unlimited fees (which would usually come with variable rate home loans), then a split loan could be your alley instead. This option means that part of your loan is secured at a fixed rate, while another part is at a variable rate, helping you get the best of both worlds.

Want to weigh your options? Scroll below for an overview of fixed rate offers, or head to our Fixed Rate Home Loan Comparison Hub to see even more offers.

* CAUTION: This comparison rate only applies to the example (s) given. Different amounts and terms will result in different comparison rates. Costs such as redemption or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but can influence the cost of the loan. The comparison rate displayed is that of a guaranteed loan with monthly repayment of principal and interest of $ 150,000 over 25 years.

** The initial monthly repayment figures are only estimates, based on the advertised rate, loan amount and term entered. The rates, fees and charges and therefore the total cost of the loan can vary depending on the amount of your loan, the length of your loan and your credit history. Actual repayments will depend on your personal circumstances and changes in interest rates.

^ See information on the Mozo Experts Choice Home Loan Awards

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