Fixed rates expose borrower 'vulnerability'

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Australian financial comparison site RateCity claims borrowers have historically been better off with an average variable home loan rate, compared to the average three-year fixed rate.

According to a study carried out by the site, borrowers only had a 30% chance  of saving money by fixing for three years in any given month between 1990 and 2010.

Borrowers were also likely to save more money by staying with average variable rates compared to average three-year fixed rates.

The study calculated the total monthly repayments in three-year periods for a $300,000 mortgage with a 30-year loan term and compared average variable rates with average three-year fixed rates and found that borrowers who fixed for three years at the average rate could have missed out on up to $30,000 in savings from rate cuts during the three years for a $300,000 home loan.


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  • Marios Rokka on 5/03/2013 4:50:05 PM

    Interesting Article, given that during that period, there were few opportunities to fix with rates as much as 70 basis points lower than variable. Given that current fixed rates are seen as being at the bottom of the cycle as they were in previous years before variable rates bumped up, taking the rate offers Security (as mentioned by Kevymac) and value.

  • Kevymac on 25/02/2013 12:43:50 PM

    People dont fix to beat the variable, they do it for peace of mind. We are in a period where fixed are lower than variable loans in many cases, which historically is not the case in Var/Fixed conversations. Im not a gambling man, Fixed for 3 years at these rates, I'll be taking them up and so will my investors.

  • Andrew Hetherington, Intellitrain P/L on 25/02/2013 12:05:41 PM

    I would think a 30% chance is a lot more than "paltry". People buy all sorts of insurance with a lot lower chance of claim that that (not to mention lotto tickets). It is not just the chance of it occurring that is relevant, but the impact to the individual if it does.

  • NoTimeLikeTheFuture on 25/02/2013 12:02:46 PM

    This confirms what I suspect i.e. banks know more than consumers - and they price fixed rates accordingly.

    I think we're best off fixing for emotional / security reasons and not to make money, as we can't expect to know more than the banks.

    If servicing is strong then variable probably leads to the best outcome (as this study indicates) - and variable loan has offset to boot.

  • Justin on 25/02/2013 11:42:22 AM

    Agree QLD Broker. And surely knowing what your repayments are for a fixed period is worth something. I just fixed 2/3rds of my loan at 5.29% for 3 years and don't care if it goes down further, at least I know I can comfortably pay extra.

  • QLD BROKER on 25/02/2013 10:11:05 AM

    Does it not make a difference "when" you fix. Yes clients who fixed on 7% or above during that time may have paid more - but with rates at 5.19% 3 years - historically these are pretty good and close to bottom of where they may go don't you think? Horses for courses - each client is different - but for me Fixed rates right now are pretty appealing over 3 years.

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