Switching to a fixed rate home loan may sound like a sensible decision in a rising interest rate market, but the numbers just don’t add up at the moment, a mortgage broker says.

There has been a rush of interest from homeowners trying to fix their loan rates in the wake of October’s official interest rate rise - the first in 19 months.

Independent mortgage broker Loan Market Group has seen a 30 per cent increase in borrowers looking to switch from a variable rate to a fixed rate loan after the Reserve Bank of Australia (RBA) raised the cash rate by 25 basis points to 3.25 per cent.

However, few people have decided to fix their loan once they had done their sums, realising variable rates were still substantially below the fixed rates being offered by major lenders, the broker said.
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Standard variable overtakes basic variable as most popular product type

The popularity of fixed rate loans in Australia has dropped slightly to just under 7% as lenders continue to raise interest rates for this loan type. According to August 2009 data from Mortgage Choice, Australia’s largest independently-owned mortgager broker, demand for fixed products has stood at less than 10% of all its loan approvals for 14 months now.

Demand for variable loans also remained relatively steady, for the third consecutive month, at 86% - only two percentage points below the 12-month average. However, standard variable loans (where eligible customers with a loan of over $150,000 can receive discounts on the interest rate plus other professional package features) have become more popular than their ‘plainer’ counterpart.
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Borrowers should consider switching from fixed rate home loans to variable rate mortgages because they are cheaper over the longer run.

Joint head of lending at Centric Lending Services Sheyne Walsh said the pendulum had swung against fixed rate mortgages.

Mr Walsh said also that borrowers with a standard variable home loan should pay off more to create a bit of a buffer.

He said the home owners would protect themselves from the shock of successive interest rate rises expected over the next year.

“The pendulum has swung very hard against value on fixed (rate mortgages),” he told AAP.
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Borrowers have been warned not to switch to fixed rate mortgages despite the prospect that interest rates will rise over the next two years.

Financial comparison company RateCity says it is cheaper for borrowers to remain with a variable home loan rate for the next five years rather than switching to a fixed rate as the latter generally has a higher interest rate.

The company says borrowers on a variable mortgage would still save thousands of dollars, even if the Reserve Bank of Australia (RBA) raised the cash rate by as much as two percentage points above its current three per cent.

“Even if variable rates may rise, fixed rates are also likely to rise, which means they’re still going to be up to two per cent higher on average (than) variable rates at the moment,” RateCity spokeswoman Michelle Hutchison said.
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Variable loans still the favourite flavour

Fixed rate loan demand hit its highest level since July 2008 at 8% of all loan approvals in June 2009 for Mortgage Choice, Australia’s largest independently-owned mortgage broker.

However, variable rate loans remained very much the favourites at 86% of all loan approvals. Demand here has been tracking at over 80% since August 2008.

Basic variable loans were the most popular type of loan in Australia, at 47% of all loan approvals. This is quite some way front of the 12-month average of 42%.

Demand for standard variable loans, many of which are professional packages (where eligible customers with a loan worth over $150,000 can receive discounts on the interest rate along with other professional package features), rose to 40%.
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Variable rate loan demand hit a record high for the second month in a row, accounting for 92% of all Australian home loan approvals in March 2009. Apart from the month prior, this is a level unseen since Mortgage Choice began recording its loan approval data in January 2003.

According to the Australian mortgage broker, fixed rate loan demand, on the other hand, represented less than 3% of all home loan approvals.

Basic variable remained the loan of choice, at 47% of all approvals (well above the 12-month average of 36%), though this headed south by two percentage points over March.
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Variable rate loans now account for 92% of all home loan approvals - a level not seen since Mortgage Choice began recording its loan approval data in January 2003. According to the mortgage broker’s loan data for February 2009, fixed rate loan demand on the other hand dipped to even lower levels, now representing only 2.5% of all home loan approvals.

The popularity of standard variable home loans in February rose three percentage points to 43% of all approvals nationwide, though remained below the 12-month average of 46%. Basic variable loan popularity continued to rise, up another percentage point to 49%.
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Interest rates are tipped to hit a record-low by winter - and analysts say this makes fixed-rate home loans a good idea again.

The popularity of fixed-rate loans collapsed to a record-low last year as the Reserve Bank of Australia (RBA) slashed rates aggressively.

This left some families paying interest rates of more than nine per cent while others on variable rates saw their mortgages drop.

But fixed mortgages are now seen as possible insurance against a surprise rise in rates.
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Australian borrowers are going back to basics when choosing a loan to finance property, with basic variable loans surging 7 percentage points to 44% and variable loans representing well over three quarters (87%) of all home loan approvals, according to Mortgage Choice loan data for November 2008.

Fixed rate loan demand remained steady at less than 3% - the lowest level since Mortgage Choice commenced its loan product reporting (in February 2003).
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Australian borrowers are increasingly choosing variable rate home loans ahead of all other types, with well over three quarters (84%) of all loan approvals in this category, according to the Mortgage Choice loan approval data for October 2008.

Meanwhile, fixed rate loan demand fell to less than 3%, down from 4% last month, which is the lowest level since Mortgage Choice commenced its loan product reporting (in February 2003).
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Home buyers are flocking to variable loans in the expectation of another interest rate cut, data shows.

Mortgage Choice housing loan approval data from August shows variable loan demand is at a five year high as borrowers keenly await another cut in interest rates by the Reserve Bank of Australia (RBA).

The RBA this month lowered rates for the first time in seven years.

The data shows demand for fixed rate loans dropped to only five per cent of all approvals from 40 per cent in November 2007, Mortgage Choice corporate affairs manager Warren O’Rourke said.
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