Over the past couple of months, many Australian lenders have cut their interest rates on fixed rate home loans. In fact, some have cut as much as .7 of a percent from 5-year fixed terms in an effort to gain a larger portion of the market.
National Australia Bank (NAB), Westpac and the Commonwealth Bank of Australia (CBA) set a challenge for other lenders at the end of August when they lowered their fixed rate home loan interest rates. The CBA slashed its 5-year fixed rate to 4.99 percent, an all time low.
The NAB and Westpac followed suit a short-time later and trimmed their interest rates. They also sharpened their pencils and reduced their 3 and 4-year fixed rates on home loans.
So Why Are Fixed Rates Being Cut?
Many economists speculated that global financial growth is restraining financial markets and this is pushing-down borrowing costs. Australian lenders are also hungry and want to drum-up more business. Therefore, to do this, they’re lowering their costs so more people use their services.
Property prices are rising and interest rates are remaining low. This represents a good time to invest with demand for home loans increasing. This means that more people are looking for home loans. So by reducing interest rates, lenders are encouraging more people to borrow from them.
What Does This Mean for a Borrower?
Before borrowing any money, do your research. Always work out any costs associated and compare interest rates and rate types. While fixed rates allow you to budget effectively and to know what you have to pay each month, they can also be more expensive to terminate if you wish to break your contract. Therefore, before fixing you need to think long-term. Most financial experts will suggest that you fix your home loan if you’re staying in a home for 5 to 8-years. This will allow you to recoup the cost of fixing your home loan.
Don’t Be Afraid to Consult a Mortgage Broker
Consult a mortgage broker if you’re unsure of how to calculate your mortgage costs or to do a home loan comparison. A broker can help you to make sense of the market and they can offer you valuable advice.
In most cases, this advice is free as a mortgage broker earns a commission on the product that they sell you. But, it pays to make sure, so ask a mortgage broker about their fees and charges before you use their services.
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Written by eChoice