You might never get a better deal on fixed rate mortgages


Fixed rate mortgage rates ultimately reflect what happens in the bond market, where banks, businesses and governments borrow money. When bond yields rise, it also means borrowing costs rise, and this trickles down to customers of banks who choose to fix their rate.

Recently, bond yields have risen because the economic recovery has convinced financial markets that there is less need for extraordinary support from central banks, much of which is aimed at keeping yields low.

Emerging signs

AMP Capital Chief Economist Shane Oliver says we are already starting to see some of the signs that would normally point to an increase in the cost of fixed rate borrowing.

“If you’re going to see an economic recovery from here and bond yields have finally bottomed out… then fixed rates are probably not going much lower than they are now, and might have already hit their peak. low, ”he said.

Others, like Steve Mickenbecker, a senior executive at Canstar, believe that we are not quite at the bottom of the fixed rate cycle yet, but that we are approaching it. He predicts that we will see fierce new competition for fixed rate mortgages among banks, which also use a cheap line of credit from the RBA, for which they only pay 0.1%.

“I think we’ll see lower fixed rates over the next five months. If you were a bank, you’d want to get your hands on some of that 0.1% money,” Mickenbecker said.

Timing is difficult


Trying to time the bottom of the interest rate cycle is a tough one, says Mickenbecker.

However, he says choosing the background isn’t the main focus. Instead, he says people are correcting in order to lock in their savings to variable rates and have some certainty about their repayments.

There are also risks to be aware of, as fixing can be a gamble that backfires: there is always a chance that you will miss out on potential savings when fixed rates fall even lower; there are costs to trying to get out of a fixed rate mortgage before the end of the term and it is not always possible to make additional repayments with some loans.

Despite this, the fall in fixed rates since last year’s COVID-19 shock has been enough to prompt a large number of borrowers to lock in interest rates on their home loans, and it has also fueled price gains. of the real estate market.

If recent signs of economic strength continue, it’s hard to see fixed rates getting much cheaper.


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