When will the RBA cut rates? It’s the question everyone is talking about these days, and while speculation swirls about the trajectory of future interest rates, the latest moves in fixed rates suggest we may be closer to a rate cut than many already think.
While about 4-in-5 Australian households are currently on a variable-rate mortgage, fixed-rate home loans are becoming more competitive with some lenders.
Opting for a fixed rate offers several advantages, such as predictable repayments, making it easier to budget, and shielding you from potential rate rises during the fixed term.
Right now, the direction of fixed rates is attracting plenty of attention.
Many lenders are reducing their fixed rates
A growing number of lenders, including several major banks, are starting to cut fixed rates across all terms, according to Mozo’s latest banking round-up.
Macquarie Bank, Commonwealth Bank, HSBC, Bank of Queensland, Westpac and its stable of brands – St.George, BankSA and Bank of Melbourne – have all recently cut some of their fixed rates.
They were joined by smaller lenders such as Hume Bank, MOVE Bank and Great Southern Bank, which also dialled down their fixed rates.
What’s especially exciting is that a number of these rate cuts were surprisingly large, in some cases worth half a percent or more for 2- to 3-year fixed rate terms.
What is driving the decline in fixed rates?
Home loan interest rates – both variable and fixed – are shaped by a variety of factors.
When it comes to fixed rates, a key driver can be lenders’ forecasts of where they believe interest rates are headed.
In this way, fixed rates can be a bellwether for the direction of future interest rates.
Among the major banks, Commonwealth Bank expects a 0.25% RBA rate cut in late 2024.
ANZ is anticipating the RBA to cut rates from about February next year.
NAB has pencilled in a rate cut by mid-2025, and Westpac is expecting several rate cuts starting in March 2025.
The good news is that none of the big four banks are forecasting rate hikes any time soon, and that’s great for those with a home loan.
What could this mean for you?
The trend to lower fixed rates suggests variable rate cuts may not be too far away either.
Right now though, fixed rates can be lower than variable rates depending on your choice of lender, fixed term and the size of your deposit.
If you’re currently struggling with your home loan repayments, locking in a fixed rate for the next 1, 2 or 3 years might help give you some certainty and home loan repayment relief.
But you’ve got to weigh that up against the potential of any variable rate cuts that you could miss out on in that same time period.
Bear in mind, predictions of rate cuts are exactly that – forecasts, not guarantees of lower rates.
Another option to consider is splitting your home loan between fixed and variable rates, which can allow you to get the best of both worlds: the certainty of a fixed rate plus the savings of a variable rate if interest rates start to head south.
Call us today to understand if fixing or splitting your loan rate could help you save.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.