NEARLY one in four borrowers are choosing a fixed-interest home loan in the face of rates rising to their highest in almost a decade - but experts warn they may not be getting the best deal.
Official lending figures for November show borrowers defied the Reserve Bank's latest official interest rate rise to take out 65,831 home loans, a 4 per cent increase on the previous month. Of these, 24 per cent were fixed for a period of two years or longer, nearly double the average level of the past decade and a half.
But experts say a significant rise in the fixed rates charged by the big banks since the end of last year means borrowers should think twice before fixing their loan.
A senior financial analyst at the research house Cannex, Harry Senlitonga, said the big five banks now charged an average premium of 0.4 percentage points above their average discounted variable rate for a three-year fixed loan. This meant interest rates would have to rise twice before borrowers saved money.
"The risk is when interest rates go down, you end up paying more," he said.
Mr Senlitonga said fixed loans had other drawbacks. They were less likely to have unlimited redraw facilities, allowing extra payments to be made, or offset accounts, which allow borrowers to use their savings to reduce the size of their loan.
Borrowers on fixed loans also faced an "interest adjustment" penalty if they chose to quit the loan before the fixed period expired.
However, Mr Senlitonga predicted a continued swing towards fixed loans after the big banks decided recently to raise their standard variable rates independently of the Reserve Bank.
"It is an extra cost for borrowers, but they're willing to pay for life insurance and car insurance. This is insurance on their mortgage."
A survey by Westpac shows consumer confidence has been shaken by the banks' unofficial rate rises. Confidence, exacerbated by rising petrol prices and continued turbulence on the sharemarket, fell 8.3 per cent this month to below its long-run average.
The general manager of the consumer group Infochoice, Denis Orrock, said some people would choose a fixed-rate loan, even though they could end up paying more.
"A lot of people are very nervous. They just want to know what their repayments are over the next three years regardless," he said.
The ideal time to lock in would have been before November. "Unfortunately we saw the fixed rates all move up significantly just after the Christmas and new year period," he said.
The average interest rate on a three-year fixed loan from the five big banks is 8.42 per cent.
By contrast, the average variable rate of the main banks is 8.69 per cent, although most borrowers should be able to get a discounted rate of about 8 per cent.
Of the big banks, NAB and Westpac offer the cheapest three-year fixed rate, 8.29 per cent, while the Commonwealth Bank has the highest rate at 8.64 per cent.
