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Author: DavidBryde

Fixed Rate Facts (Part 1) - Avoid the revert rate rort

Our Product Manager David Bryde puts fixed rate home loans under the spotlight and finds a little known fact about them that borrowers should be aware of.

With many lenders significantly dropping their fixed rates recently there are some great opportunities out there for borrowers to lock in a rate that is lower than where variable rates currently sit.

Not only can you immediately reduce your interest rate, fixing takes any uncertainty about future Reserve Bank rate movements completely out of the equation for the length of time you fix for.

No more nervous waits on the first Tuesday afternoon of each month to hear the outcome of the Reserve Bank’s latest meeting!

Fixing is not for everyone. You won’t benefit from any reductions in rates, but you’re insulated against any increases affecting your rate or repayment amount until your fixed term expires.

When it does expire you’ll have a choice of re-fixing or reverting to a variable rate.

The Revert Rate “rort”

If you don’t re-fix at that time, be aware that unless you’ve already been paying a yearly fee on your loan, most lenders don’t roll you onto their most competitive variable rate. More often than not you’ll end up on their most expensive (standard variable) rate. Ouch!

Some lenders offer their cheapest variable rates to all new borrowers – it seems a little unfair that someone coming out of a fixed rate should be dumped onto a rate rarely sold to new customers.

If your fixed rate was for only one or two years you may be looking for a new lender before you know it.

If you’re lucky you may have an opportunity to convert to a cheaper variable product but it typically won’t happen unless you initiate the process and you may have to pay a fee to do so.

The Greater’s Great Rate Fixed Rate Home Loan and Ultimate Fixed Home Loan both automatically revert to rates lower than our standard variable rate (at no cost) should a borrower choose not to re-fix.

This is one of the reasons why the comparison rates on our fixed rate loans are usually much lower than our competitors, even if the headline (advertised) rate isn’t. Remember to always look at the comparison rate when choosing a loan.

At the time of writing here is a comparison of some of the most competitive advertised fixed rates in the market:

Lender

1 Year

3 Year

5 Year

Advertised

Comparison

Advertised

Comparison

Advertised

Comparison

ANZ*

6.59%

7.60%

6.44%

7.37%

6.99%

7.44%

CBA*

6.59%

7.23%

6.59%

7.10%

6.99%

7.17%

CUA

6.75%

7.23%

6.39%

7.04%

7.15%

7.25%

Greater

6.29%

6.91%

6.65%

6.89%

6.94%

6.98%

* An annual fee is payable to receive these rates.

Home loan comparison rates are based on $150,000 for a term of 25 years. The comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

The abolishment of exit fees may make it easier to switch lenders for a better deal if you fall victim to this “rort” but borrowers shouldn’t be forced to go through that process to get a fair deal.

Have you ever been the victim of a revert rate “rort”? How did you deal with it?

In our next blog we’ll show how some fixed rates are more flexible than others.

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