More borrowers choose variable rates over fixed rates

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    Rising speculations that the Reserve Bank of Australia will cut the official cash rate later this year could be one of the number of reasons fixed home loans dropped last February by 1.05% compared to the prior month, according to Mortgage Choice chief executive officer Susan Mitchell.

    In a statement, Mitchell said: “Borrowers who are expecting interest rates to fall in the near term may be less inclined to lock in to a fixed rate.” She added that the continuous property price falls in the nation’s capitals may be causing borrowers to become more cautious.

    In the present property market, it’s not surprising to see an increased demand for variable rate loan products, because these loans are more flexible and allow “borrowers to make added loan repayments, access home loan features such as an offset account and redraw facility, and of course save on their loan repayments if their interest rate drops”.

    Apart from remaining an attractive option to people who seek certainty in their home loan repayments, especially at a time when the market faces considerable uncertainty, fixed rate loans may be an appropriate option for borrowers expecting a potential change to their income or budget.

    “My advice for anyone looking to have the best of both worlds is to speak to their mortgage broker about splitting their loan, which allows a borrower to allocate a proportion of the loan to a fixed interest rate, and a proportion to a variable interest rate depending on their financial situation,” Mitchell said.

    According to Mortgage Choice, preferences of borrowers for fix rates vary across the country. Over 25% of borrowers in Queensland opt for a fixed home loan and over 24% in New South Wales, 22% of borrowers in South Australia and 20% in Western Australia opt for a fixed rate mortgage, while 17% of borrowers in Victoria choose to fix their home loans.

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    Original Article