The word on the street is that interest rates are going up and, although the Reserve Bank has tried to hose down imminent expectations of such, fixed rates have long been indicating the increase and have been on the rise.
But there are still pockets of price competitiveness.
And – as is the way nowadays – the news is best if you are an owner-occupier making principal and interest repayments.
The sharpest fixed rates
Yahoo Finance commissioned mortgage comparator Mozo to interrogate the market for the best set-and-forget fixed deals over one to five years.
Bear in mind that Philip Lowe, the head of our central bank, has indicated official rate rises will commence in 2023.
The best fix over one year is UBank’s UHomeLoan Fixed at 1.79 per cent.
All fixed rates are changing fast at the moment. A few days ago, the Bank of Us was top over the next time periods. Not so now.
Instead, Southern Cross Credit Union (Premium Home Loan Professional) features in both the two-year and three-year fixed finals, with rates of 1.99 per cent and 2.19 per cent, respectively.
But tying for first place with Southern Cross Credit Union over two years, again with 1.99 per cent, is Qudos Bank.
Note how over those time frames, the number creeps up. And it goes higher when you get to four- and five-year lock-ins.
Then, the sweetest deals today come from BankVic. You can secure 2.49 per cent over four years and 2.59 per cent over five.
But, you guessed it, you have to act fast.
So what are variable rates doing?
It’s important to consider variable rates in all this. Because fixed rates have, for the first time in nearly two years, now moved above them.
The cheapest variable-rate comes from Reduce Home Loans, with its Super Saver Variable Loan. It is just 1.77 per cent.
The cheapest variable rate you can get with a quality offset account is 1.85 per cent from Well Home Loans.
But it’s not just the rate you should consider. Variable rates come with various other advantages.
Chief among these is that you can pay extra. And, of course, paying extra always saves you a truckload of interest.
Fixed rates often don’t come with a 100 per cent offset account either. Used smartly, these accounts can also save you a small fortune, this time for no extra outlay.
A related and very important issue is the options that offset accounts provide. If you make overpayments into one of these, instead of directly into the loan, it gives you the ultimate flexibility.
Further, you might want to retain your existing home as an investment property. Having made repayments into an offset account, and not into the loan itself, means your mortgage is never technically paid down. This preserves all the tax deductions to be able to turn it into an investment property down the track, and start building a portfolio of income-generating, tax-effective assets.
What is the best strategy then?
Consider getting the best of both worlds – committing to a fix for half and staying variable for the other half.
This way, you can fill up the offset account attached to the variable portion as fast as you can to save as much interest as possible. It’s clever to throw every dollar you have to your name – perhaps for school fees or your next car, holiday or couch, and your emergency – or what I call your ‘Holy Sh*t’ – fund into offset accounts as well.
Who knows, you may even be able to ‘pay’ the variable portion down – via a full offset account – by the time the fixed rate comes off.
At this point, you could also change the fixed to variable, and happily knock off that portion of the loan as well.
Fixed rates in conjunction with variable rates can provide important stability (alongside the debt-freedom opportunity of their variable companions) in a world where interest rates will go up. But not soon.