We have found that some of our customers can be quite surprised by the interest rates that are offered when they apply for a home loan. Actually, the interest rates have been remarkably consistent over the last two and a half years, only really fluctuating within 0.5% during this time. Given how important the interest rate is when choosing your home loan, with a bad decision potentially costing hundreds of thousands of dollars, it is essential that you can make a fair and reasonable comparison.
The average home loan interest rates will vary by product, with there being two rough distinctions. Generally speaking, one, two and three-year fixed rate products will fall fairly close to each other, whilst five years fixed will normally considerably higher, much closer to the rates of standard tracker products. This is due to the five-year fixed rate home interest loan products representing a more significant risk for the provider, so they need to ensure the product can represent a fair average over the time period without too much financial risk for them. If products present too much of a risk and things take an unexpected turn, this can lead to the kind of financial problems that have been seen worldwide since 2008.
Looking at the first basic category, the one, two and three-year fixed home loan products, these have all held an average between 4.3% and 4.5% for the last twelve months and as such are demonstrating that they are a consistent and stable choice for a home loan product. Barring some rare instances, the longer the term of the home loan product, the higher the interest rates will be. In May of 2018, the average rate for a one-year fixed product was 4.38%, two-year products had an average rate of 4.42% and three-year products averaged at 4.46%. You can see from these numbers that the difference is not very large, but it can still represent a significant monthly difference in your repayments.
By contrast, the five-year fixed products have been averaging between 4.7% and 4.9% over the last twelve months. You can see straight away that this is considerably higher than the shorter-term products, but these products are definitely worth consideration as they represent the best stability as you will have definite interest rates locked down for five years – providing considerable peace of mind. Finally, if we compare this to the standard variable rate products we can see that they have held an average rate between 4.9% and 5.1%. These rates are the highest average rates on the market, representing a much higher rate than any of the previously mentioned products. There really is very little reason to be on a standard variable rate for any longer than is necessary given the significant savings other products can provide. If your home loan product has expired or is close to doing so, speak to your mortgage broker and see if you can get a new deal arranged.