Borrowers respond to fixed-rate discounting

Borrowers have responded to the aggressive cutting of fixed home loan rates over the past couple of months by refinancing with "cheap" fixed rate loans.

Mortgage aggregator AFG reported yesterday that its brokers sold 7198 loans in August, worth $2.7 billion. It was the biggest month for the group since March last year.

Thirty-eight per cent of loans were sold to borrowers refinancing and 9.4 per cent of loans were on fixed terms - up from 7.9 per cent in July.

According to Infochoice, two-year fixed home loan rates came down by an average of 25 basis points to 6.87 per cent during August. Three-year rates fell by 27 basis points to 6.94 per cent, four-year rates fell by 33 points to 7.3 per cent, and five-year rates fell by 33 points to 7.38 per cent.

Borrowers can get a three-year fixed rate loan for as little 6.29 per cent.

AFG's general manager of sales and operations, Mark Hewitt, said: "Borrower expectations about interest rates shifted significantly during August. We are seeing a lot of refinancing as borrowers take advantage of discounted product."

The average loan size was $384,124. It varied from $452,230 in New South Wales to $321,164 in the Northern Territory.

The average loan-to-valuation ratio has jumped from 64.2 per cent, in June, to 66.3 per cent in July, and 67.7 per cent in August. Hewitt said this was due to an increase in the number of first-home buyers (up from 12.9 to 13.8 per cent), as they tend to borrow more.