Despite the increased volatility of variable mortgages, more households have chosen to ride the roller-coaster of moving interest rates rather than lock into fixed loans.
Fixed rates have slumped to less than 1 per cent of all new loans, according to recent surveys, compared with the traditional level of 10 per cent.
Even with variable interest rates rising borrowers prefer to take their chances that to lock in a “high fixed rate”. Borrowers are concerned by the high exit fees associated with fixed home loans. Most people know someone who was caught in a very expensive fixed home loan product last year when variable rates were dropping.
According to lending experts, despite protecting borrowers from further rises, fixed rates are still perceived as too high and too expensive.
“Another key factor to the popularity of variable rate loans is the lower exit fee, such as $600 to $700 compared to potentially several thousand dollars for a fixed-rate mortgage.”
When a home Loan exit fees are low, borrowers feel more comfort in knowing that they can always seek out and refinance to a cheaper product down the track.