Interest rates on fixed rate loans increase again. Are you too late to fix?

There isn’t much time left for home owners looking to secure a fixed rate mortgage with a low interest rate, with new research showing 60% of the country’s fixed rate home loans are set to increase rates from next week.

The warning comes as the Commonwealth Bank lifted its interest rate today for four-year fixed mortgages by 0.6 percentage points to 7.59%.

Westpac, St. George and Bankwest adjusted rates by up to 0.45% during the past week, with some three to five-year fixed rate mortgages now well above 7%. Westpac five year fixed mortgages are now at 7.64%, while its one-year fixed mortgages are now at 5.59%.

ANZ is the only bank out of the big four that has not raised its fixed rates in the last few weeks, but it says there continues to be “upward pressure” on longer-term fixed rate mortgages.

RateCity says the market rate for a three-year fixed loan is now at 6.89%, a four-year fixed rate at 7.24% and a five-year fixed loan at 7.59%.

Chief executive Damian Smith says this is well above the market value of a variable rate mortgage, which hovers at about 5.5%, but there is still time for home owners to look around for good deals.

“This means that most of the current fixed rates are now out of date, so you must be careful when choosing a home loan,” Smith said. “If you’ve just applied for a home loan and are waiting for a settlement or are rolling over a loan from refinancing, [you] may be caught with a higher fixed rate.”

Smith said fixed rate loan interest rises are also a good development, as it shows the economy is beginning to recover and lending standards will become more relaxed.

“It is not all bad news. Confidence is returning to the market, property prices appear to be stable and the Reserve Bank has kept the cash rate unchanged at 3% for the past six months, which means lenders are becoming more comfortable and beginning to advertise more aggressively,” he said.

Harry Senlitonga, Canstar Cannex analyst, says the bottom of the rate cycle has been reached and fixed rate loans will rise as a result, and that home owners must consider their own specific circumstances before signing onto a fixed loan.

“If you’re looking to try and fix in your rate at the bottom of the cycle, then yes, you’re probably too late. But there are still good deals, and you would need to get in quickly to get them as rates will increase.”

“The best evidence we’ve seen is the underlying money market rate, and we have seen an upward trend. We expect this will be passed on to the lenders, but there are still competitive rates out there and it’s just a question of what your own circumstances are.”

Senlitonga says home owners looking at a fixed rate mortgage will gain piece of mind by having a set repayment for a number of years, but will lose out in other areas.

“There are always pros and cons. People need to be aware that by signing on to a fixed rate mortgage, it’s a contractual agreement and hard to get out of, if you can get out of it at all. Secondly, these loans have more restrictions than variable loans, such as not being able to pay lump sums.”

But Senlitonga points out home owners can create some interest alternatives if they are prepared to sign over onto a variable loan.

“At the moment, fixed rates are about 1.5% on average above the variable home loans. If you have sufficient funds, you can just stay on variables and pay that extra 1.5% as if you were on the fixed loan. On a fixed loan you probably wouldn’t be able to do that, but variables often let you pay back large amounts on the loan.”