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No move expected by RBA, finder.com

Borrowers are shunning fixed rate home loans, with the Reserve Bank expected to keep the official cash rate on hold at its board meeting today (March 4, 2014), according to one of Australia’s biggest comparison websites finder.com.au.

The finder.com.au/home-loans monthly Reserve Bank survey of 10 leading Australian economists – including from major banks – unanimously predict no rate change on Tuesday, with most expecting no movements until the end of the year or early next year.

Michelle Hutchison, Money Expert at finder.com.au/home-loans, said many borrowers are choosing to ride out the low variable rate wave but could miss out on bigger savings by not fixing their home loan.

“With every economist in our survey expecting that the Reserve Bank will leave the cash rate at 2.50 percent next week, and home loan interest rates at record lows, it’s no wonder we’re seeing borrowers sticking with variable rates.

“In fact, the proportion of fixed rate home loans out of all loans financed is among the lowest levels in the past year – 16.8 percent in December 2013, according to finder.com.au analysis of Australian Bureau of Statistics Housing Finance figures.

“There has been a decline in the number of fixed loans financed, with a drop of 17 percent since its peak in May 2013, when the number of fixed loans financed reached a five-year high of 10,631.

“We’re also seeing higher demand for variable rate home loans on finder.com.au/home-loans, with the proportion of variable home loan traffic up 15 percent since July 2013.

“The biggest concern is that fixed rates are starting to rise and borrowers may miss out on securing a low rate if they want to fix their home loan later.”

According to finder.com.au/home-loans, the average three-year fixed rate has increased by 0.16 percentage points to 5.11 percent since September 2013. However, three-year fixed rates are still lower than variable rates on average, at 5.39 percent.

“For a $300,000 home loan, borrowers could potentially save almost $2,000 in three years by fixing at the average rate of 5.11 percent compared to the average variable rate of 5.39 percent.

“And if our survey of economists is correct and the cash rate increases within the next year, borrowers who fix could save even more,” said Mrs Hutchison.

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