Variable loans costing us less

The Courier-Mail, 5 November 2007

TAKEN out a fixed rate home loan any time since 1990?

Chances are your efforts to outmaneouvre the Reserve Bank's rate rises have cost you thousands of dollars in extra interest.

According to new research, a massive 83 per cent of those with fixed rate home loans have ended up worse off than their counterparts who have standard variable loans.

That means less than one in every five people who picked fixed rates has walked away with the better deal.

Analysing Reserve Bank data since 1990, mortgage provider QuickDirect compared basic variable rates and the big banks' average three-year fixed rate every month to 2004.

In one example, a fixed rate loan taken out in late 2000 would have cost $47,250 in interest over three years, as opposed to only $43,260 with a basic variable loan -- a saving of almost $4000.

QuickDirect managing director Hamish Carlisle said rate rise speculation -- as seen in the current climate -- often ``scared'' borrowers into adopting fixed rates.

"(But) borrowers have not been particularly good at picking the best time to fix their rates, with peaks in fixed rate approvals often occurring at the worst possible times," Mr Carlisle said. "This could well reflect `scaremongering' from lenders and brokers in the lead-up to and around official interest rate rises."

With the Reserve Bank likely to lift interest rates for the second time this year when it meets this week, Australians were being pressured into choosing the wrong type of loan, Mr Carlisle said.

"The fact is that the odds of paying less interest in the future when you fix your mortgage rate are against you," he said.

"To actually save money by taking out a fixed rate loan, you either need to be better than average at predicting the future path of interest rates or just plain lucky."

The official interest rate has been steadily rising since 2002 and stands at 6.5 per cent. The last drop was by 25 basis points in December 2001.