Australia’s housing affordability crisis has been dominating headlines, with rising interest rates putting home ownership further out of reach for many Aussies. That’s why the latest move by one of the country’s biggest banks comes as a welcome surprise.
National Australia Bank (NAB) has just cut its 3-year fixed home loan rate by 0.06% to 5.99%. This reduction makes NAB the first major bank to offer a fixed rate starting with a 5, a psychological threshold that could entice buyers.
Why NAB’s Rate Cut Stands Out
NAB’s decision drops its 3-year fixed rate below 6% for the first time in 2022. Rivals CBA, Westpac and ANZ still charge around 6.5-6.7% for 3-year fixed loans.
The rate slash is a strategic play by NAB to gauge demand among buyers for fixed rate products. As Sally Tindall, RateCity’s research director notes, “A big bank fixed rate that starts with a five is likely to turn at least a few heads, particularly among those worried about further cash rate hikes.”
Fixed rate popularity peaked in mid-2021, when 46% of new mortgages opted for fixed terms. That figure now sits at just 17%, indicating borrowers have strongly favored variable rate products in the current rising rate environment.
The Tradeoff Between Fixed and Variable Rates
So what should buyers do – go fixed or stay variable? Each option has pros and cons.
The key benefit of a fixed rate is certainty. Borrowers know their repayments won’t fluctuate for the term, providing peace of mind. This shields them from having to track every utterance by the RBA regarding future rate moves.
The catch is fixed rates require giving up flexibility. Borrowers face caps on extra repayments and lose offset account access. There are also financial penalties for breaking fixed loans early.
Meanwhile, variable rates offer greater flexibility and the chance to pay less interest if rates fall. But they expose borrowers to the risk of higher repayments if the RBA hikes rates further.
Tindall sums it up best: “For those looking for relief from tracking the RBA, a fixed rate could be the certainty they need. For those wanting the least interest, it could end up a gamble between competitive variable and short-term fixed rates.”
Know The Fine Print Before Fixing
For home owners considering NAB’s offer, we suggest speaking to an experienced Mortgage Broker first who will be able to assess your finance position and compare Nab’s rate and terms with other banks so you are informed of your options.
While NAB’s move provides a glimmer of hope for struggling homeowners, there are no easy answers on whether to fix or stay variable amid economic uncertainty. Each borrower must weigh up their own circumstances and risk appetite.