Are Fixed Rate Cuts a Sign of Lower Rates Ahead?

"When will interest rates drop?" It’s the question on everyone’s mind. As speculation grows around future cuts, recent trends in fixed rates could signal that variable rates may follow suit sooner rather than later.

Though approximately 80% of Australian households are currently on variable-rate mortgages, fixed-rate home loans are still worth a close look. Fixing your rate offers several advantages, such as predictable repayments, which can help simplify budgeting, and protection from potential rate hikes during the fixed period.

Currently, the downward trend in fixed rates is gaining a lot of attention.

Many Lenders Are Slashing Fixed Rates

A growing number of lenders, including several big banks, are reducing fixed rates across various terms, as outlined in Mozo’s latest banking round-up.

Major players like Macquarie Bank, Commonwealth Bank, HSBC, Bank of Queensland, and Westpac (along with its brands St.George, BankSA, and Bank of Melbourne) have all lowered some of their fixed rates. Smaller institutions such as Hume Bank, MOVE Bank, and Great Southern Bank have also joined in, adjusting their rates downwards.

What’s particularly exciting is that many of these reductions are substantial, with some lenders offering cuts of half a percentage point or more, especially on 2- to 3-year fixed terms.

Why Are Fixed Rates Dropping?

Both fixed and variable home loan rates are influenced by various economic factors.

For fixed rates specifically, lenders often set them based on their expectations of where interest rates are heading in the future. This makes fixed rates a useful indicator of what might come next in the world of home loan rates.

Commonwealth Bank is currently forecasting a 0.25% rate cut by the RBA toward the end of 2024. ANZ anticipates rate cuts starting as early as February next year, while NAB predicts a rate drop by mid-2025, and Westpac expects several cuts starting in March 2025.

The key takeaway? None of the major banks foresee rate hikes in the near future, which is good news for mortgage holders.

What Does This Mean for You?

The downward trend in fixed rates may indicate that variable rate cuts are not far behind. For now, though, fixed rates may actually be lower than variable rates depending on your lender, the term you choose, and your deposit size.

If you’re finding your mortgage repayments tough, locking in a fixed rate for 1, 2, or 3 years could provide some certainty and potential relief. However, you’ll need to weigh this against the possibility of missing out on potential variable rate reductions during that same period.

Moreover, if you're considering refinancing your home loan, it's important to explore all options before locking in a decision. Keep in mind that these predictions are just forecasts. They aren’t guaranteed to play out as expected, and it’s wise to prepare for potential changes ahead.

Another option to explore is splitting your home loan between a fixed and variable rate. This way, you can enjoy the stability of a fixed rate while still taking advantage of any future rate drops on the variable portion. At Osinski Finance, we will help you find out if fixing or splitting your home loan could work in your favour.

Ready to explore your home loan options? Contact us today!

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