What the Reduction in Fixed Rates by CBA, Westpac, and NAB Means for You
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Last Updated: 26 Aug, 2024
In the ever-changing world of home loans, the current talk of the town is interest rate reductions. Australian banks, both large and small, have been decreasing their fixed interest rates, creating ripples of interest and conjecture among loan seekers.
Notably, three of the country’s largest banks, CBA, Westpac and NAB, have recently slashed their fixed interest rates.
CBA has reduced its 1-year fixed rate by 20 basis points to 6.74% and its 3-year fixed rate by 70 basis points to 6.24%.
Westpac has decreased its two, three, four and five-year fixed rates by 80 basis points to 5.89%
NAB has lowered its three-year fixed rate by 60 basis points to 5.99%.
What are the reasons behind these changes and what can we expect going forward? Our experts shed some light on this.
The Reasons Behind Dropping Fixed Rates
Jonathan Preston, Senior Mortgage Broker at Home Loan Experts, notes, “I foresee that all banks will reduce fixed rates, it’s not just the non-major banks; they are probably more eager for business.” He believes that a general agreement is emerging that “Rates are likely to decrease shortly,” influenced by financial market indicators.
Alan Hemmings, CEO of Home Loan Experts, supports this view. “NAB reduced its three-year fixed rate last month, and Westpac has now announced cuts to its one-year and five-year fixed rates. I predict more banks will follow this trend,” Hemmings states. This widespread activity hints at a larger market trend that borrowers need to be aware of.
Understanding Market and Economic Indicators
Both Hemmings and Preston are of the opinion that these rate cuts are a reaction to wider economic and market expectations. Preston says, “The economy is slightly weak and is being bolstered by factors like the NDIS and a rise in immigration.”
However, he cautions about the unpredictability of economic conditions, saying, “Circumstances can change rapidly, and there’s always the risk of inflation rising again.” Possible rate cuts in the US may also prompt the Reserve Bank of Australia (RBA) to slash rates.
Preston emphasises that financial markets play a significant role in central bank decisions. “In the end, markets dictate central bank actions. At present, the indications suggest rates are more likely to descend than ascend, and banks are reacting by cutting both term deposit rates and fixed rates,” he elaborates.
Hemmings further elucidates the dynamics of these changes. “Fixed rates aren’t directly tied to the cash rate, unlike variable rates. They’re more influenced by what the market forecasts for fixed rates,” says Hemmings. This often means fixed rates adjust before variable rates, potentially indicating future reductions.
Is It Time to Lock In A Fixed Rate?
As fixed rates are falling, many borrowers are wondering if it’s the right time to lock in a lower rate. Hemmings suggests, “If your current variable rate is higher than the offered fixed rates, fixing could be a beneficial move. But if the difference is negligible, it might not be worth it.”
He uses an example to make his point clearer: “For a customer currently on a rate of 6.14%, fixing at the 5.99% rate for five years might not be the best choice. The difference is just one rate cut away. Many economists predict that the cash rate could decrease by 75 basis points over the next two years, meaning customers could end up paying more on the fixed rate.”
Choosing Wisely Based on Your Situation
As banks continue reducing fixed rates, borrowers may feel a mix of anticipation and caution. While lower rates are appealing, it’s crucial to thoroughly assess your loan situation and future prospects.
Whether you’re considering locking in a fixed rate or sticking with a variable rate, consulting with a mortgage expert can help you understand these changes better.
If you’re uncertain about your next step, we’re here to assist. Contact us at 1300 889 743 or make an online enquiry for free, today. Let’s collaborate to find the optimal solution for your home loan requirements.
What the Reduction in Fixed Rates by CBA, Westpac, and NAB Means for You
What the Reduction in Fixed Rates by CBA, Westpac, and NAB Means for You
Last Updated: 26 Aug, 2024
In the ever-changing world of home loans, the current talk of the town is interest rate reductions. Australian banks, both large and small, have been decreasing their fixed interest rates, creating ripples of interest and conjecture among loan seekers.
Notably, three of the country’s largest banks, CBA, Westpac and NAB, have recently slashed their fixed interest rates.
What are the reasons behind these changes and what can we expect going forward? Our experts shed some light on this.
The Reasons Behind Dropping Fixed Rates
Jonathan Preston, Senior Mortgage Broker at Home Loan Experts, notes, “I foresee that all banks will reduce fixed rates, it’s not just the non-major banks; they are probably more eager for business.” He believes that a general agreement is emerging that “Rates are likely to decrease shortly,” influenced by financial market indicators.
Alan Hemmings, CEO of Home Loan Experts, supports this view. “NAB reduced its three-year fixed rate last month, and Westpac has now announced cuts to its one-year and five-year fixed rates. I predict more banks will follow this trend,” Hemmings states. This widespread activity hints at a larger market trend that borrowers need to be aware of.
Understanding Market and Economic Indicators
Both Hemmings and Preston are of the opinion that these rate cuts are a reaction to wider economic and market expectations. Preston says, “The economy is slightly weak and is being bolstered by factors like the NDIS and a rise in immigration.”
However, he cautions about the unpredictability of economic conditions, saying, “Circumstances can change rapidly, and there’s always the risk of inflation rising again.” Possible rate cuts in the US may also prompt the Reserve Bank of Australia (RBA) to slash rates.
Preston emphasises that financial markets play a significant role in central bank decisions. “In the end, markets dictate central bank actions. At present, the indications suggest rates are more likely to descend than ascend, and banks are reacting by cutting both term deposit rates and fixed rates,” he elaborates.
Hemmings further elucidates the dynamics of these changes. “Fixed rates aren’t directly tied to the cash rate, unlike variable rates. They’re more influenced by what the market forecasts for fixed rates,” says Hemmings. This often means fixed rates adjust before variable rates, potentially indicating future reductions.
Is It Time to Lock In A Fixed Rate?
As fixed rates are falling, many borrowers are wondering if it’s the right time to lock in a lower rate. Hemmings suggests, “If your current variable rate is higher than the offered fixed rates, fixing could be a beneficial move. But if the difference is negligible, it might not be worth it.”
He uses an example to make his point clearer: “For a customer currently on a rate of 6.14%, fixing at the 5.99% rate for five years might not be the best choice. The difference is just one rate cut away. Many economists predict that the cash rate could decrease by 75 basis points over the next two years, meaning customers could end up paying more on the fixed rate.”
Choosing Wisely Based on Your Situation
As banks continue reducing fixed rates, borrowers may feel a mix of anticipation and caution. While lower rates are appealing, it’s crucial to thoroughly assess your loan situation and future prospects.
Whether you’re considering locking in a fixed rate or sticking with a variable rate, consulting with a mortgage expert can help you understand these changes better.
If you’re uncertain about your next step, we’re here to assist. Contact us at 1300 889 743 or make an online enquiry for free, today. Let’s collaborate to find the optimal solution for your home loan requirements.
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