Suncorp has slashed fixed home loan rates for the second time this month by 0.76 percentage points, joining the increasing number of lenders that are dropping their fixed rates.
While some fixed rates are coming down and further drops are expected, most banks’ lowest rates are still variable, though it remains contentious just how many variable rate hikes are ahead.
The big four bank economists were split about how high the cash rate will get, and whether it might fall again.
CBA predicted that the OCR would reach 2.6% by November and to drop to 2.1% in November 2023. Westpac forecasted a 3.35% cash rate by February 2023 before it declined to 2.35% in 2024. NAB tipped the OCR to hit 2.85% by November and stay steady until 2024. ANZ, meanwhile, expected the OCR to sit at 3.35% by November 2022 then decline to 2.85% in late 2024.
Using Westpac’s cash rate forecast and assuming that the changes are passed on in full, RateCity.com analysis showed that by refinancing to the lowest variable rate, the average existing variable rate customer with a $500,000, 25-year loan could potentially save $13,850 after two years.
If they instead refinanced to the lowest two-year fixed rate, the same borrower could save $12,246, but would have to pay $1,604 more if they’d opted for the lowest variable rate option.
RateCity.com.au showed the potential savings from refinancing to the lowest fixed and variable rates:
|
|
Rate today |
Cost over 2 years |
Difference to “do nothing” |
|---|---|---|---|
|
Do nothing (av. var owner-occupier) |
4.61% |
$57,335 |
|
|
Lowest variable rate |
3.10% |
$43,485 |
-$13,850 |
|
Lowest 2 yr rate |
4.49% |
$45,089 |
-$12,246 |
Notes: Calculations are estimates based on the average variable rate owner-occupier paying principal and interest with $500,000 debt and 25 years remaining on a variable rate of 4.61% today with rates rising in line with Westpac’s forecast. Switch fees included.
“Already 15 lenders on our database have cut fixed rates this month and we expect more to follow,” said Sally Tindall, RateCity.com.au research director. “Just because a fixed rate has been cut, doesn’t automatically make it a good idea. While the fixed rate mortgage market is starting to turn around, most banks’ lowest rates are still variable. With millions of borrowers rolling off their fixed rates in the next 12 months, banks will need to put better deals on the table 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.”
Tindall advised that whatever borrowers decide, they have to make sure to “shop around because the difference between an average deal and a good one can equal tens of thousands of dollars, particularly on larger loans.”
