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AU Official interest rates tipped to fall to 2 per cent mid next year

Property Here - Saturday, June 01, 2013

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THE LOWEST mortgage rates in almost half a century will deliver homeowners an average saving of around $140 on their monthly repayments and they are being tipped to fall within 12 months as the mining slowdown starts to bite.

The Reserve Bank is expected to keep interest rates on hold on Tuesday at 2.75 per cent but a highest low of 2 per cent is being forecast by some economists for mid next year.

Such a sharp fall, if passed on by the banks in full, would deliver an average standard variable rate of 5.41 per cent - the lowest level since 1968.

Experts expect more cuts to fixed home loans

Reducing the average monthly mortgage repayment on a $300,000 loan from the current level of $1749 to $1609 per month.

The most recent low during the global financial crisis was May-June 2009 when the SVR dropped to 5.75 per cent.

Westpac chief economist Bill Evans yesterday tipped no follow-up move from the RBA next week after the decision in May to by 0.25 per cent but that the deteriorating outlook will force the central bank to cut again in August.

This will be followed by more cuts in last few months of this year and another in early 2014 will bring the official cash rate to a record low of 2 per cent by March next year, he said.

The prospect of lower standard variable rates has also seen the big banks slash their 1-5 year rates in recent weeks as they move much more aggressively into the fixed home loan market.

One of the country's biggest mortgage brokers AFG said demand for fixed loans particularly for a 3-year period have more than doubled in the past four months to historic highs.

"It has risen from about 12-14 per cent of loans we write to around 30 per cent," AFG managing director Brett McKeon said.

The company processed a record $3.2 billion in home loans during April - up 40 per cent on the same month last year.

It was the largest monthly total recorded by the company and compares with just $2.2 billion in April last year.

Mr McKeon said the recent round of official interest rate cuts has seen buyers shy away from fixed home loans as they did not want to miss out on future cuts.

But he believes the current fixed rate offerings won't fall too much further even if official interest rates drop to 2 per cent.

Financial comparison website RateCity spokesperson Michelle Hutchison said that while there are great deals available at the moment and buyers should shop around with even 2-year fixed rate offering varying considerable from a low of 4.79 per cent to a high of 6.09 per cent.

"Fixed home loan rates are still falling and many are lower than variable rates, which is great news for borrowers who are considering fixing their home loan," she said.

"But this could be a sign that variable rates will follow with more rate cuts this year. Nevertheless, it's still a good time to consider fixing your home loan if you're concerned about rising interest rates in the next few years. But there is still a big difference between the lowest and highest rates available so make sure you compare home loan rates to ensure your fixed rate is worthwhile."

 

CHANGES IN MONTHLY REPAYMENTS

Mortgage/$200,000/$300,000/$400,000/$500,000/$600,000

-0.25%/-$32/-$47/-$63/-$79/-$95

-0.5%/-$63/-$94/-$125/-$157/-$188

-0.75%/-$93/-$140/-$187/-$234/-$280

*source RateCity based on starting mortgage rate of 5.74% - the average offer from the major banks

 

THE HOME LOAN DILEMMA

 

PROS OF FIXING YOUR LOAN

* Peace of mind for your budgeting

* Protection from rate fluctuations

* Rates now at close to historic lows

* The double benefit of 50:50 loans that provide flexibility and security at the same time

CONS TO FIXING YOUR LOAN

* Blocked from increasing monthly payments

* Charges for lump sum payments outside of scheduled repayments

* Huge exit fees during the period of the fixed term

* Official interest rates tipped to fall later this year

*source RESI



Read more: http://www.news.com.au/realestate/news/official-interest-rates-tipped-to-fall-to-2-per-cent-mid-next-year/story-fncq3gat-1226655087122#ixzz2WI34qnDe