Fixed interest rates lower than variable rates – for now

Fact Checked
Updated 07/05/2024
Fixed interest rates lower than variable rates – for now

Time to read : 3 Minutes

If you’ve been putting finding a better mortgage rate in the too hard basket, now may be a good time to do something about it. Why? I’ve been speaking to Compare Club’s brokers and they’ve told me that some fixed rate loans are currently on offer at a lower rate than variable mortgages. 

Why is this important?

  • It gives homeowners more options. Not everyone will want to fix their loan, but it does mean you have a choice.

  • It offers some homeowners stability. Sure, interest rates may go down, but we don’t know when. Fixed rates can help some mortgage holders budget better, knowing their biggest expense won’t change for the fixed periods.

  • It may be a sign that mortgages could be getting cheaper. Banks were hiking their fixed rates long before the RBA first put up the cash rate, so if they’re dropping rates, it could suggest a cut in interest rates later this year.

Be aware: it’s not a surefire bet that the Reserve Bank will lower the cash rate. But this is the strongest indication yet.

Will these low fixed rate home loans last?

The short answer is “don’t know”. Lenders change their rates all the time, and if the economy spooks them, fixed rates may go up. Or they could go down, if the RBA is happy that inflation is also going down. The reality is there’s no way of knowing how much longer the lower fixed rates will be around. It’s why Compare Club’s Head of Home Loans, Anton Stevenson says when fixed interest rates drop below variable rates, it’s time to look into it fast.

“It’s rare that fixed interest rates dip below variable ones. We currently have fixed rates below 5.8%* on our panel, and that’s lower than we’ve seen in several years.”

Is a fixed rate right for you?

Whether you use spreadsheets or another system, if you’re trying to stay on top of your budget, with a fixed interest rate you’ll know how much to factor in for your home loan repayments. That’s because if there’s an interest rate rise, your repayments remain the same, and it shouldn’t impact your budget. If rate rises are a concern for you, it’s your way of buying some peace of mind.

Be aware: Should interest rates go down when you’re on a fixed rate, you won’t receive a cut. In other words you’ll be required to continue making the same repayments.

What about variable rates?

If interest rates fall and you’re on a variable rate, then you’re likely to benefit from the cut with reduced repayments.

Be aware: after the fastest interest rate hikes in a decade, anything is possible. With a variable interest rate, if rates go up then your repayments are likely to as well. It is possible to part-fix your home loan, but that’s a conversation to have with your broker.

Bottom line

While it’s rare for fixed rates to fall below variable rates, if the idea of locking in a better rate appeals to you, you’ll need to act quickly.

  • There’s no way of knowing which way interest rates will move until the next RBA cash rate meeting, which is weeks away.

  • You could consider fixing half your loan and putting the other half on variable if you want to hedge your bets.

  • If you need help to find the best home loan option for you, speak to a broker, like Anton’s team at Compare Club.

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*Rates correct as of May 2024. Financial disclaimer: The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.