Home owners considering fixed rate mortgages should hold fire for the time being, according to Australia’s Loan Market Group.

Loan Market Group Executive Director John Kolenda said locking in a long term fixed rate would be tempting with the cash rate at a 45-year low of 3.25 per cent.

But he said most commentators expected the Reserve Bank of Australia to further reduce rates over the coming months.

“The RBA has acknowledged that the market expectation is for the trough in the cash rate to be around 2.0 per cent later in the year,” he said.

“I think the rates will be at the bottom of the cycle when the RBA makes a 25 basis points cut.

“We have seen the RBA make aggressive rate cuts of up to 100 basis points to try and prevent the Australian economy going into recession.

“When the central bank starts making smaller cuts that will demonstrate that it believes it has gone about as low as it needs to with the cash rate.”

Mr Kolenda said borrowers considering changing to a fixed rate should consult a mortgage broker about how those rates operate.

“Fixed rates are linked to variable rates, but the driver behind changes in fixed rates is different,” he said.

“Where a variable rate is influenced predominantly by the actions of the Reserve Bank, fixed rate movements are influenced by the wholesale money market.”

Mr Kolenda said the advantage of variable rates over fixed rates is that they give mortgage holders greater control and options.

“Many fixed rate home loans don’t allow you to make significant extra repayments to reduce the principal, and if you do decide to pay it out early or refinance, there may be some substantial exit costs,” he said.

“A good solution with rates at generational lows is to consider splitting your loan between a fixed and variable interest rate.

“A mortgage broker can help you decide what is best for your situation.”