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Author: DavidBryde

Don't be a casualty of the war on fixed rate home loans

Our Product Manager, David Bryde, poses a question that borrowers should understand before they take advantage of the price war that has broken out in fixed rate home loans.

We are seeing an outbreak of competition for fixed rate home loans that has rarely been seen in the past. The ferocity of it has led some to term it a war between lenders. Rate City article 5/8/13

An important question for borrowers to understand is what is prompting lenders to fight so hard for fixed rate business.

Pure competition will always influence loan pricing as will the anticipated future direction of interest rates, but the level of fixed rate discounting that is occurring right now suggests that there may be more to it.

According to the CEO of the Australian Bankers’ Association, Steven Munchenburg, “very few people pay the advertised standard variable rate, with most bank customers paying less”.1

Assuming this is the case, It’s of great benefit to lenders if they can attract borrowers with an initially low fixed rate for a period of time that then reverts to a standard variable rate that very few people pay, for the remainder of the loan term.

What looks on the surface to be a great deal for borrowers can turn out to be very expensive over the whole term of their loan.

You’ll see what I mean when you look at the Commonwealth Bank’s aggressively priced fixed rates in comparison to our current pricing at The Greater.

 

Source: Home Loan Key Fact Sheets from http://www.commbank.com.au/ and www.greater.com.au

 

Although the CBA product has a lower headline rate you can see that because The Greater loan reverts to a much more competitive ongoing variable rate you’ll save over $30,000 in interest with it over the life of your loan with us.

Is it fair that fixed rate borrowers are put onto a rate that "very few people pay" when their fixed rate expires?

If you’re thinking of taking advantage of the low fixed rates currently on offer, arm yourself with the information readily available in the Home Loan Key Fact Sheets that lenders provide and it can help you avoid becoming a long-term casualty of the current pricing war.

1 ABA blog 10 July 2013

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