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The reason behind fixed home loans being so cheap

As an effect of the COVID-19, the interest rates have fallen too low. But the home loans having a fixed rate are far cheaper as compared to the ones having variable rates. We are going to talk about the reasons behind this issue in detail.

How the government affects fixed-rate loans?

After the COVID-19, the RBA cut variable rates home loans by 0.5% in March 2020. Not all the lenders agreed to it but the government’s overall effects succeeded in getting this rate cut by 0.25%. But the fixed rate interests have fallen by 0.8%. This has happened because the government issued bonds of 3 years to those banks which will significantly cut their rates.

Are the rates falling as a result of it?

Historical data suggests if the fixed-rates fall significantly, the interest rates are about to fall. As unemployment is also at its highest, the rates are supposed to below now. The RBA has said that these rates will remain so until the market comes to a normal state ad fills the buyers with enough confidence.

What about the break fees risks?

The fee that you must pay when you exit your fixed-rate loan is called a break fee. This may happen when you refinance, sell your property, etc. This fee is needed to compensate the lender’s economic loss because you have borrowed the money at a fixed rate.

This time the Australian government has already given the banks cheap rate loans; there is hardly any loss that the banks would suffer if the borrowers break the loan. Even if the borrower repays the loan too early, there is no loss that the bank may suffer.

Should you fix in such a situation?

If you are stuck with this fundamental question of whether you should fix it or not, you may talk to our experts about it. They will give you a clear idea to get the best deal out of it.

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