Fixed-rate or variable? Here’s the home loan for you



Another official rate cut this year now appears to hinge on near-term movements in the Australian dollar.

The official cash rate was kept on hold by the Reserve Bank at its monthly meeting on Tuesday after the Australian dollar fell to its lowest level in six years against the US currency.

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Volatility on Chinese stock markets in the past month has triggered concerns about the growth outlook for Australia’s largest trading partner and dampened support for the Aussie dollar.


Reserve Bank governor Glenn Stevens. Photo: AAP

The RBA’s main motivation for cutting rates in recent months has been to drive down the value of the local dollar against international currencies.

A falling dollar can stoke domestic economic activity because it improves the competitiveness of Australian exporters and import-competing industries.

With the Aussie dollar falling significantly in June, the RBA chose to keep official rates at two per cent for the time being.

There is a fair chance that the central bank may not ease rates again this year because the Australian dollar is likely to come under further downward pressure from international sources.

US official rates are set to be increased by the Federal Reserve in coming months, which should drive down the value of the Australian currency.

Implications for home borrowers

For prospective homebuyers or owners looking to refinance, record low fixed rates present an opportunity to lock in cheap borrowing costs for two or more years.

Some lenders are offering five-year fixed mortgages at below 4.3 per cent – only a slight premium to the lowest standard variable rate available at 3.99 per cent.


Fixed-rate mortgages are becoming increasingly popular. Photo: Shutterstock

Canstar spokeswoman Justine Davies says demand for fixed-rate loans has continued to grow since the end of last year.

In fact, most home borrowers are gravitating to fixed-rate offerings to lock in recent interest rate falls.

This is borne out by Canstar’s site traffic data in the past six months.

“Currently around 61 per cent of the visitors to home loan comparison pages are looking for a fixed-rate loan, with five-year fixed being the most popular,” Ms Davies said.

“Back in January, 54 per cent of people were looking for a fixed-rate loan.”

According to Canstar’s data, around 25 per cent of all people shopping for a mortgage are considering five-year offers, while 21 per cent are looking at three-year loans.

“It does seem that borrowers are keen to lock in the two recent cash rate cuts – and lock it in for a longer, rather than shorter term,” Ms Davies said.

The best deals

Here’s a list of the best five-year fixed rates available in the mortgage market, according to Canstar.

The comparison rates displayed for each of the products in the table below do not take into account early repayment fees and redraw costs. The comparison rates were calculated on a loan of $150,000 to be repaid over 25 years.


The average advertised rate across the market for mortgages fixed over five years is 4.78 per cent.

Here is a list of the five standard variable loan products with the lowest interest rate:


The average interest rate on standard variable home loans stands at around 4.91 per cent.

The calculation for comparison rates for standard variable loans were made using the same assumptions mentioned above.

No respite for depositors

Borrowers might salivate over these record low interest rates for mortgages, but there is no getting around the fact that they are being subsidised by retirees and savers.

Rates in the deposits market continued to fall in the past month.

The only positive development for savers is that inflation is also in decline, which means that most deposit accounts are returning small real returns.

In March, the average returns on some segments of the deposits market looked set to be outpaced by inflation.

Here’s a Cannex table showing the average market rates for term deposits:

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