Why it’s suddenly harder to fix a home loan for four years

Just as Australians are rushing to fix their home loans as a buffer against any sudden price rises, banks are ditching ultra low rates.

Despite continual statements from the Reserve Bank that the cash rate won’t rise for another three years, huge price hikes in housing has made home borrowers jittery. Add to that some experts are casting doubt on whether the Reserve can really hold out that long.

But locking in low cost loans for, say, four years may not suit the banks profits in future. So now, it’s becoming harder to find that special rate.

The Australian newspaper is reporting the Commonwealth Bank and Bendigo are among those trying to persuade borrowers to go for shorter terms.

RateCity.com.au, a comparison site, claims ten lenders increased four-year fixed rates last month.

Last month, RateCity reported:

  • 33 lenders cut fixed home loan rates in the last two months on 456 mortgage rates.
  • 2-year fixed rates have seen the most cuts in the last two months
  • 57 lenders are now offering 175 rates under 2 per cent.
  • The lowest is the Greater Bank at 1.69%

“The mortgage rate war is still playing out with another record low loan now on the table,” says RateCity.com.au research director, Sally Tindall.

“Anyone looking to refinance in this market is spoilt for choice and could potentially save thousands by shopping around.”

“While the RBA has kept rates on hold since November, the fixed rate cuts keep coming from lenders big and small, inching below their competitors.”

“Banks offering owner-occupier fixed rates over 2 per cent might have to concede to peer pressure and consider cutting rates if they want to lock in new customers,” she said.

That said, Ms Tindall does see at least one increase between now and 2004. And with Australians piling in to the property market at hugely inflated prices, that will be a problem for some.

Fixed loan rates used to be just 15 per cent of the market.  Today, the ANZ bank reckons that number has risen to more like 40 per cent.

So just how much more are the banks charging?  According to The Australian, the CBA increased its four-year fixed owner-occupier home loan rate by 0.20 per cent to 2.19 per cent. Bendigo Bank, Bank of Queensland and Service One Alliance Bank put theirs up by 0.30 per cent.

Meanwhile the Commonwealth, NAB and Westpac cut interest on their one, two and three year fixed rates to try and switch home lenders away from that long term hold on rises. Variable rates also went down for the same reason.

The advice from the experts is always the same:   if you haven’t looked at your home loan in a while, do it now.  You almost certainly are missing out.

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