Fixed Rate Time?

Borrowers are enjoying generational low interest rates but should consider switching at least a part of their home loan to a fixed mortgage, a leading mortgage broker says.

Loan Market Group executive director John Kolenda said now was the best time to fix a home loan even though the Reserve Bank of Australia (RBA) was expected to further cut interest rates.

"The best time is always that window before variable rates reach the bottom," Mr Kolenda said.

"If the variable rates bottom out and fixed rates start to hedge up, then they (consumers) miss the boat and it is going to cost more."

ICAP senior economist Adam Carr said it was a "fantastic time" to fix the rate on a loan.

"What is your downside - the reality is even if the RBA cuts a few more times, banks are not going to pass all of it now," Mr Carr said.

"The risk is that you miss the swing and you are going to be caught out."

Westpac offers a three-year fixed rate loan at 5.39 per cent compared to their standard variable rate at 5.91 per cent.

Between September and April, the RBA has lowered the cash rate by 4.25 percentage points to three per cent, a 49-year low, in a bid to stimulate the local economy.

Commercial banks have passed on most of the cuts to official interest rates but three of the four big banks passed on less than half the RBA's cut of 25 basis points to the cash rate on April 7.

National Australia Bank left their rate unchanged.

Mr Kolenda said borrowers could split their mortgage into fixed and variable components.

"With fixed rates, there is a certainty of knowing what your monthly payments are," he said.

"If you take a part-variable loan, you get the added benefit that whatever extra payments you make, you can just pile that into the variable-rate component and get that down as quick as you can."

Mr Carr said when the RBA started raising the cash rate, the movement to a neutral monetary policy stance - with a cash rate around five per cent - would be swift.

Borrowing rates, variable and fixed, would move accordingly, he said.

"When they go up, they are going to go up pretty quickly because it will be one-way traffic," Mr Carr said.

"Banks will need to fix that as they will need to hedge against that themselves."

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