Should your rate stay fixed or move to variable?

Suncorp became the 15th lender to cut its fixed home loan rate in August, which begs the question — should borrowers fix or stay variable?

RateCity’s analysis found that in addition to lenders cutting at least one fixed rate since the Reserve Bank of Australia (RBA) board meeting on 2 August, 34 lenders have raised their fixed rates during this time.

Variable rates remain the lowest offering from most banks, with loans.com.au’s 3.10 per cent the lowest rate of all lenders, while Westpac’s 3.49 per cent variable for two years (which rises to 3.89 per cent from then on) is the lowest among the big four.

Alternatively, the Police Credit Union’s one-year fixed rate of 3.99 per cent is the lowest available, while Westpac’s four-year fixed rate of 4.89 per cent is the smallest offering of any of the big four banks.

Using Westpac’s cash rate forecast — 3.35 per cent by February 2023 before dropping to 2.35 per cent in 2024 — the financial services firm provided insights on how much the average existing variable rate customer with a $500,000, 25-year loan could save if they refinanced to the lowest variable rate versus the lowest two-year fixed rate.

Based on these parameters, after two years, a borrower could potentially save $13,850 by refinancing to the lowest variable rate of 3.10 per cent. Savings would still be on offer if they were to refinance to the lowest two-year fixed rate — 4.49 per cent — albeit, at $12,246, they would be $1,604 lower than the variable savings.

Even under the Commonwealth Bank of Australia, ANZ and NAB’s cash rate forecasts, the lowest variable options are cheaper than their fixed counterparts.

RateCity’s research director Sally Tindall said that as borrowers roll off their fixed rates over the next year, banks will need to step up their offering to ensure they’re able to retain their customers.

“One way banks can protect themselves from losing customers during the surge in refinancing is to lock people into a fixed-rate contract.

“At this point, a lowest variable rate is likely to come out cheaper than a short-term fixed rate, however, there’s no guarantee the cash rate will do what the economists predict,” she added.

“Whatever you decide, make sure you shop around because the difference between an average deal and a good one can equal tens of thousands of dollars, particularly on larger loans.”

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