Despite falling variable home loan rates, more borrowers are tossing tradition and opting for fixed rate home loans, according to financial comparison website RateCity.com.au (RateCity).
According to the site, 22% of home loan applications through their service were for fixed home loans in January, this year, 47% more than January, 2012.
While RateCity saw a dip in the proportion of fixed home loan applications in February to 17%, it was still above last year’s average of 16%.
ABS Housing Finance data shows more fixed home loans were financed last year. In 2012, there were about 69,000 fixed home loans financed, roughly 60% more than in 2011.
Michelle Hutchison, spokesperson for RateCity, says it’s unusual to see a rise in popularity for fixed home loans while variable rates are falling.
“Historically, borrowers generally chose to stick with a variable home loan rate if they were falling because they don’t want to miss out on the savings that come with lower repayments. So in that regard it’s unusual to see so many borrowers applying for fixed home loans while variable rates are still falling.”
During the past two interest rate cycles where variable rates dropped (2000-01 and 2008-09), Hutchison says, the number of fixed home loans financed dipped. And while rates have been falling since November, 2011, the number of fixed home loans financed has increased.
“Much of the popularity in fixed home loans is from the attractive rates with many lenders offering more competitive deals for fixed rates compared to variable.”