A decline in the number of homebuyers choosing fixed interest rate mortgages suggest households are far more influenced by the present state of their budgets than the risk of rising rates.

Major mortgage broker Australian Finance Group (AFG) released data on Wednesday showing the mortgages it wrote in November recorded the lowest proportion at fixed rates in more than five years.

At just 2.1 per cent, it undershot the previous recorded low of 2.5 per cent reached in February, after reaching a high of eight per cent in June in the meantime.

The figures tally with less timely data from the Australian Bureau of Statistics (ABS).

The difference in the circumstances surrounding these low points is notable.

Early this year, Reserve Bank of Australia (RBA) was aggressively cutting interest rates but the new low in the proportion opting for fixed interest rates was reached in November, the second month of what is widely expected to be a long series of interest rate increases.

This invites the conclusion that many, perhaps most, borrowers simply do not see the decision - to fix and not to fix - as a question of insurance against possible rate rises.

RBA data shows the standard variable home loan rate offered by banks was typically 5.75 per cent in April while the average three-year fixed rate loan was being offered at 5.85 per cent.

The difference equated to only about $6 per week on a $200,000 loan - but the safety of the fixed rate could not beat the allure of further falls in the variable rate.

Since then, of course, the RBA’s official rate rises had pushed the standard variable rate up to 6.3 per cent by November.

But the three-year fixed rate available to borrowers had risen even more sharply, to around 7.6 per cent.

Even if the other banks follow Westpac’s lead on Tuesday and translate the RBA’s 0.25 percentage point hike in the overnight cash rate into a 0.45 point rise in stanard variable rate mortgages, fixed rates will still look expensive relative to variable rates.

Borrowers seduced by the marginally lower variable rates earlier this year have woken up six months later in an alley without their wallets.

As well as apparently confirming that short-termism dominates borrowers’ decision-making, the behaviour of interest rates this year highlights an important consideration borrowers ought to, but rarely do, take into account.

It might seem obvious that the cleverest borrower would be the one who switches into a fixed rate loan the day before the RBA announces its first interest rate rise.

Movements in interest rates this year show just how wrong that view is.

Fixed interest rates can be seen as a crystallisation of the short term interest - like the RBA’s overnight cash rate - expected to apply sequentially over longer periods.

This is why fixed rates on offer had already started rising by April as investors in debt markets anticipated an economic recovery and a rising tide of short term rates.

Anyone “cleverly” locking in a three-year fixed rate the day before the RBA’s first rate hike in October would have been a full two percentage points worse off than if the decision had been made early this year.

The horse has already bolted this time.

For households with potential cash flow problems if rates rise more steeply than expected, fixed rates could still offer useful - albeit more expensive - insurance.

But the chance to lock in a low fixed rate is gone for the time being.

Homebuyers might do well to heed this lesson next time variable home loan rates are at cyclical lows.

AAP