Borrowers do better with variable rates, study shows

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New research by Canstar reveals that over two decades borrowers have done better by choosing a variable rate for their home loans than those who opted with fixed rate packages.
 
The report compared an average three-year fixed-rate loan with variable rates for over 20 years. Canstar stated that Australians who choose fixed did better for 112 months, but people with variable rates were ahead for 123 months.
 
“That’s pretty close to a 50-50 bet,” said Canstar research manager Mitchell Watson.
 
Watson added that about 15% of mortgages were financed with fixed rates, which were “very competitive” at the moment.
 
Fixed rates are recommended for borrowers who want to be certain of repayment prices and who are not looking to sell their home anytime soon. Homebuyers with fixed-rate loans, however, were one of the most affected customers during the global financial crunch.
 
“At the start of November 2011 the cash rate was 4.75% and by September 2013 it had dropped to 2.5%. We’re not going to see that again — it doesn’t have that sort of buffer,” he said. “Another option is for borrowers to split their loan — fix half and keep half variable. They can hedge their bets that way.”
 

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