Coronavirus: Is Now The Right Time To Fix Your Home Loan?

personOtto Dargan access_timeApril 1, 2020

The RBA cut the cash rate twice during March in an unprecedented move caused by the coronavirus (COVID-19) pandemic, bringing the cash rate down to 0.25%.

As a result, home loan fixed rates are at an all-time low with one lender offering a 2.09% p.a. fixed rate (comparison rate: 3.77% p.a.).

So, is this the right time to fix your home loan or should you wait?

Will the RBA cut rates again?

The Reserve Bank has announced they will not cut rates further so it is very likely that fixing now is a good idea.

According to a statement by RBA governor, Philip Lowe, “The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.”

Of course, nobody can be sure and the RBA may change their mind and cut rates again but we believe this is unlikely.

What are the best fixed rates currently available?

The best home loan fixed interest rates (owner-occupied, principal and interest) currently on offer from our panel of lenders:

Owner Occupied Principal and Interest Interest Rate (p.a) Comparison Rate (p.a.)
1 year Fixed Rate 2.19% 3.95%
2 Year Fixed Rate 2.09% 3.77%
3 Year Fixed Rate 2.14% 3.62%
5 Year Fixed Rate 2.54% 3.50%

How much will I save on my monthly repayments if I refinance to a lower rate?

How much you’ll save on your monthly repayments depends on your current mortgage rate and the rate you qualify for.

For example, if you currently have a 30 year home loan of $400,000 at a rate of say 4%, you’d currently be paying $2,387 in monthly repayments.

However, if you were able to refinance that 30-year loan to another loan with a more competitive interest rate, like 2.09% (*current lowest fixed rate), your monthly repayments would be $1,871 instead.

You’re saving $516 every month!

What about break costs?

If you refinance your home loan while you’re on a fixed loan term, you’ll have to pay a break fee. Break cost doesn’t apply for variable rate home loans.

However, paying a break fee isn’t always bad, as you either pay the cost as a lump sum or you pay a higher rate of interest for the fixed rate term.

Since the banks are just passing on their cost, as their funding source is also on a locked-in rate.

So a customer shouldn’t necessarily not refinance because there is a break fee. It depends on if they are trying to achieve something e.g. cash out.

You can use our break costs calculator to get an estimate of your break fees.

How do I know if a refinance is worth it for me if I’m on a fixed term?

We have an easy to use home loan refinance calculator that can help you determine how much you’ll save by refinancing to a lower interest rate.

Moreover, with lenders offering refinance cashbacks (rebates) between $2,000- $4,000. It can help offset some of that break cost and refinance fees.

Ideally, you should owe less than 80% of your property if you’re refinancing to take advantage of a better interest rate. As otherwise, Lenders Mortgage Insurance (LMI) fees will apply which will negate the benefits of a lower rate.

Carefully, consider your financial situation and your employment stability before proceeding, in light of the economic impact of the current coronavirus pandemic.

Do you need help fixing your home loan?

Our award-winning mortgage brokers are working from home and can help you determine whether or not fixing your home loan may be worth it for you!

Talk with one of our specialist mortage brokers by giving us a call on 1300 889 743 or fill in our short assessment form to find out if you qualify.

folderCategory: Fixed Rate Loans

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