Interest rate decision rate cut on the cards to think about locking in your home loan rate

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THE Reserve Bank of Australia is strongly tipped to cut the cash rate this month, leaving borrowers to decide whether or not they should lock in their loan.

The cash rate has remained stagnant at two per cent since May last year but a sharp drop in inflation has experts tipping it will fall again from its already record low.

The board meets Tuesday and if it does cut rates all attention will be on lenders to see if they pass on the fall.

Last month Bank of Queensland raised its variable rate loans out-of-cycle blaming the fiercely competitive market and increased funding costs and these reasons could result in other institutions failing to pass on any cuts.

Whatever happens dont rest easy when it comes to assessing your loans as the variation between the lowest and highest variable rate loans remains high, according to the latest calculations from financial comparison website iSelect.

On a $300,000 30-year home loan the lowest variable rate is 3.98 per cent while the highest rate is 5.19 per cent a difference of 1.21 per cent.

The sites spokeswoman Laura Crowden urges borrowers to weigh up their options carefully to determine whether or not to fix their loan.

Its important to take into account your future plans when considering whether or not to fix your home loan,’ she says.

If you think you might want to sell or refinance your home in the next few years then its probably not a good idea to fix as youll have to pay break costs.

Borrowers should also be aware fixed loans are far less flexible when it comes to making extra repayments or allowing a customer to redraw on their loan.

On a 30-year $300,000 loan the average three-year fixed rate is 4.28 per cent the lowest offer according to their database is 4.28 per cent and the highest is 4.53 per cent.

Mortgage Choice spokeswoman Jessica Darnbrough says they have seen a large portion of customers locking in their loans.

An increase in funding costs has forced many of Australias lenders to lift their interest rates out of cycle with the Reserve Bank in recent months and moving forward this trend is expected to continue,’ she says.

To avoid these potential rate hikes, a growing number of borrowers are looking to fix part or all of their mortgage.

Data from Mortgage Choice shows more than one in five loans written is now fixed.