Seven rate moves in four months hurt. They hurt circa $600 a month on the average $611,158 mortgage.
So if the discomfort has become so unbearable that you’re looking to fix your mortgage deal, what are the best deals?
Read more from Nicole Pedersen-McKinnon:
Fixes have forged higher
First of all you need to know that (yep) fixes have forward higher.
I asked comparison house Mozo to analyse the interest repricing just since July.
And the results were frankly astonishing.
That is only just over a month ago and for owner occupiers the:
*1-year average is up 67 basis points to 4.85 per cent
2-year average is up 63 basis points to 5.45 per cent
3-year average is up 57 basis points to 5.80 per cent
4-year average is up 39 basis points to 6.07 per cent
5-year average is up 53 basis points to 6.28 per cent.
Those are some pretty big jumps in a short period.
Having said that, there have been several big cuts, by big institutions, to longer term fixes in the past two weeks.
For example, Australia’s largest lender CBA last week cut its four-year fixed deal to 4.99 per cent, 1.6 percentage points lower than it was previously.
That means the best deals, across every time period, are as below:
But my reservations are three-fold.
Why you should be wary
The thing about a fix is that you are betting against a bank that you know better than it the future direction of interest rates.
The bottom line: whatever the current deals, lenders price for profit.
You are also contracted to stay until the end of the fixed-rate period… that’s the agreement you sign.
Today, you need to be aware that official interest rates are actually tipped to begin falling again. And as soon as the middle of next year.
So lock in for longer and you could well be stuck paying over-the-odds.
The cheapest comparable, quality variable rate in the market is just 3.09 per cent versus the typical fix up around 4 per cent or more.
Note that the variable rate has yet to increase for last week’s 50 basis point hike.
In any case, you need to know that a fixed rate does not offer the powerful debt-reduction possibilities that a variable one does.
A fix does not usually come with an offset account, which is a fast-track to mortgage-freedom.
A mortgage offset account is also a ‘safe space’ to house all the money in your life, to cut your overall interest bill but also retain full access to the funds (unlike putting the money directly in a mortgage and relying on redraw).
Consider a fix mix
For this reason, I only ever advocate fixing half of your loan. Only if the conditions are right. And only for a maximum period of three years.
In fact, three years may be too long at the moment.
A fix is a commitment. Which you cannot break.
And I acutely recall the phone calls of despair the last time rates were pushing painfully higher and people fixed in panic, just before the credit crack-up in 2008.
They then fell four-at-a-time, month-after-month, as the world threatened to topple off an economic cliff.
It didn’t. But that didn’t matter to those who’d locked in their loans.
They were stuck paying through the nose for years.
You can check out the best variable deals – and clock the big leap-up if you lock in. Consider carefully your next money move.