Elders Home Loans has withdrawn its three-year fixed rate home loan and now only offers fixed rate loans for one and two years.
General manager Robert Redford says the company’s experience was that clients taking out three-year loans found the market moved against them.
"We didn’t get any goodwill out of it. We found as soon as those loans expired at the end of the three years, they were all being refinanced with someone else. We were just losing all those loans," Redford says.
Those clients also thought Elders was simply being obstructive when they were told it would cost them to break the three-year term.
"We’re just matching funds with funds. Someone has to write out a cheque" when a fixed term is broken.
While people are prepared to ride it out when they’ve fixed for one or two years, three years seems just too long to wait, he says.
By and large, people are generally better off with floating rates: "If you do the exercise, over the last decade, there were only two or three occasions when you were better of fixing," Redford says.
Most of Elders’ home lending is done at floating rates because it is most competitive in that area. Its floating rate is currently 7.2% compared with 7.5% at the five major home lending banks.
By contrast, Elders’ one-year fixed rate at 7.35% compares with 6.9% for the banks and its two-year fixed rate at 7.6% compares with between 7.3% and 7.4% at the banks. Redford says it all boils down to funding costs and Elders can’t afford to match the banks in the fixed rate arena.
