One of Australia’s largest banks has offered a surprise gift to home seekers struggling to afford their own home.
Nab Bank The Central Bank of Egypt cut the three-year fixed interest rate on housing loans by 0.6% to 5.99%.
The lower interest rates make NAB the first of Australia’s big four banks to offer potential buyers a loan product with the number “five” in front of it, excluding Commonwealth Bank’s Unloan offering.
This also marks the first change to a fixed interest rate by a major bank this year, according to RateCity.
“This is a strategic move by NAB in an attempt to test whether there is any appetite among borrowers for a return to fixed rates,” said Sally Tindall, director of research at RateCity.
A fixed interest rate starting with a “five” from the major banks is likely to attract at least some interest, especially among those who are concerned about the possibility of raising cash rates again.
The popularity of fixed rates peaked in July 2021 when 46 per cent of new and refinanced loans chose a fixed rate, according to the Australian Bureau of Statistics.
“This now stands at just 1.7 percent in the latest data.
NAB has cut its three-year fixed rate on home loans by 0.6 per cent to 5.99 per cent.
“It’s hard to see people flocking back to fixed rates, but this sub-6% rate from NAB is designed to test that.
“However, fixing the interest rate for three years is a large financial commitment at any time, but especially when the future of the cash rate remains highly uncertain.”
The discount is limited to the three-year product and to homeowner borrowers who pay principal and interest.
Borrowers must own at least 30 percent of their property for the loan-to-value ratio to be 70 percent or less.
NAB’s competitors, Commonwealth Bank, Westpac Bank and ANZ, all offer three-year fixed rates of 6.59 per cent.
For five-year products, CBA and Westpac offer loans at 6.69 per cent, while NAB offers 6.79 per cent and ANZ offers 6.84 per cent.
Ms Tindall said a fixed interest rate could provide borrowers with some relief from following the RBA’s every thought and expression.
The Reserve Bank of Australia sets the cash rate, which acts as a benchmark for interest rates across the economy.
Reserve Bank of Australia Governor Michelle Bullock said interest rates were in “constrained territory”, meaning they were likely to come down at some point, however, even the RBA does not know exactly when that will happen, by how much, and whether we are likely to see further increases before then.
“For those looking for some relief from having to follow the RBA’s every thought, a fixed interest rate could be the certainty they need, even if they end up paying more for that peace of mind.
For those looking to pay as little interest as possible, it may end up being a gamble between a very competitive variable interest rate and a short-term fixed one.
The RateCity.com.au database shows the lowest one-year fixed rate is 5.74 per cent, while the lowest variable rate is just 0.01 percentage points higher at 5.75 per cent.
“There is only a tiny sliver of light between the two rates, but a few changes in cash rates in either direction would completely change that equation.
Borrowers considering a fixed rate should know that these loans are much less flexible, with limits on additional repayments and typically no access to a catch-up account.
Short-term fixed interest rates can also require a lot of work as you will need to renegotiate your loan, or refinance it at the end of the fixed rate period.
‘The last thing you want to do is switch to a very uncompetitive variable interest rate after the fixed rate term ends.’
