Latest NewsVariable Rates Still Better: ExpertFriday, 23 September 2016

Borrowers should consider switching from fixed rate home loans to variable rate mortgages because they are cheaper over the longer run.

Joint head of lending at Centric Lending Services Sheyne Walsh said the pendulum had swung against fixed rate mortgages.

Mr Walsh said also that borrowers with a standard variable home loan should pay off more to create a bit of a buffer.

He said the home owners would protect themselves from the shock of successive interest rate rises expected over the next year.

"The pendulum has swung very hard against value on fixed (rate mortgages)," he told AAP.

"If I start the variable home loan rate at 5.05 per cent today, and I increase the rate every ninety days by 25 basis points, at the end of 12 months my rate will be 6.05 per cent ... At the end of three years it will be 8.05 per cent.

"But fixed rates have risen, generally, by about two per cent from the beginning of the year," he said.

The standard fixed interest rate in July was 6.5 per cent for home loans, while the standard variable rate issued by a bank was 5.80 per cent, the latest figures from the Reserve Bank of Australia (RBA) show.

On Tuesday the RBA opted for the fifth straight month to hold interest rates steady at three per cent.

But in his accompanying statement, RBA governor Glenn Stevens said the bank would continue to adjust rates to foster economic growth - a comment that has fuelled debate among market forecasters about when the next interest rate will arrive.

On August 4, Mr Stevens told a House of Representatives Economics committee that interest rates were at emergency lows.

By August 6 the debt futures market fully priced in a 25 basis point rate rise by November.

Mr Walsh said borrowers should review their finances and consider variable rates because the major banks are "looking for a chance" to raise interest rates ahead of the RBA.

"The banks are doing an extremely good job of crying poor at the moment," he said

"Will the banks raise rates before Christmas? The answer is they're looking for the opportunity to do so if they possibly can. They're looking for that chance, how can they raise rates."

In the days before the RBA's September board meeting National Australia Bank and JP Morgan brought forward their forecasts for a 50 basis point rate rise from the March quarter to the December quarter.

Mr Walsh said, each half a percentage point interest rate rise translated to a monthly repayment increase of $41 for every $100,000 borrowed.

According to Centric, the average variable rate for the past 15 years was 7.76 per cent.

Meanwhile, variable mortgage products from mortgage managers was at 5.45 per cent, up from 5.40 the previous month, RBA data showed.

Supplied by AAP

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