With the property market in Australia seeing something of an upswing at the moment, in part due to the repeated interest rate cuts, more and more consumers are considering becoming first time buyers. This, as most know, can be a daunting task, mostly because the mortgage loan system in Australia was complicated enough as it was, prior to the recession. The aftermath of the crisis determined the Reserve Bank of Australia to cut the official cash rate, which, in turn kept driving variable interest rate mortgage loans ever lower. The way the mortgage market looks right now, taking out a fixed interest loan might not seem like the best advised idea, since it would have the borrower locked into a rate, irrespective of the (highly likely) further decreases in interest rates.
Luckily for consumers, though, whenever they move away from a certain segment of the lending market, for a while there it looks like the lenders would do anything to bring their dollars back. That’s precisely why the fixed interest rate home loan segment is currently acting as the hotly disputed setting of a competition between banks. In the latest strategic move in this dispute, one of Australia’s top for banks has decided to drop its fixed interest rate to the lowest level recorded in the past two decades. The interest rate cut, which amounts to 29 basis points, has brought the level of interest per annum on fixed loans down to 5.55 per cent. According to a home loan comparison website, it is the lowest level of interest currently being offered by Australia’s top four banks. According to the bank’s representatives, the move was warranted by the 25 per cent ratio of fixed interest mortgage loans, out of all the mortgages currently active in their portfolio.
The move might strike some as desperate, especially if being weighed against the backdrop of fixed interest rate home loans offered by some of Australia’s other banks. Our research at Bankwest Home Loans, for instance, came up with one such loan with a fixed rate of 4.99 per cent per annum for two years. The same loan allows borrowers to make extra repayments of up to $5,000 per year. It’s worth wondering if the major banks can actually compete with such terms – or if they ought to make such efforts to begin with.
Consumers who are not entirely convinced that fixed rate mortgages are the best option, given the current economic backdrop, are also starting to look into split home loans. These products allow them the flexibility of variable interest home loans, combined with the safety and security of fixed rate mortgages. And their advantages don’t stop here. The ratio of the split can be adjusted to suit the borrowers’ needs to a tee: the minimum split is 7.5 per cent, with a 92.5 per cent maximum. The borrowers can also decide whether they want the bulk of their mortgage to be fixed or variable. According to Perth Now property experts, some banks provide their best rate for split interest loans in which the fixed interest is below 51 per cent. And through it all, the borrower would still be able to make withdrawals from the variable interest segment of the split, while the rest of the amount has had its interest rate secured.
Aside from this immediately noticeable advantage, there is a second meaning to the term ‘split’ in split mortgages. They can be split between several borrowers, which is a very convenient option for those who decide to take out a home loan with a family member or a friend. This basically means that each individual co-borrower will have access to their own account, making it much easier to keep track of repayments and, of course, to avoid arguments over money.