A GROWING number of lenders are offering fixed home loan rates in the rock-bottom 3 per cent range but experts are warning customers they could get caught out by these enticing deals.

Expensive application fees, ongoing fee costs and hefty revert rates once the loan term expires – some as high as 5.79 per cent – are among the ways customers could get stung by taking short fixed rate loans.

Heritage Bank last week dropped its one-year fixed year loan rate to 3.99 per cent but financial service firm Canstar’s research manager Mitchell Watson said borrowers should think twice before being ‘induced’ by these offers.

‘Twelve months is a very short time when it comes to the life of the loan so those going into one-year fixed deals should look closely at the revert rate,” he said.

‘It’s a big task to refinance again after 12 months and chase better deals.

‘Over 10 years you may be worse off by choosing one of these loans.’

The revert rate on some of these deals once the 12-month period expires jumps almost 2 per cent.

Canstar data found if a customer took out a $350,000 loan on the average basic variable home loan rate of 5.17 per cent, over a 10-year period, the loan would cost $230,655.

But if a customer took out a one-year fixed rate of 3.99 per cent, they could end up paying up to $241,000 over a 10-year period once the fixed rate expired and jumped to the revert rate.

Mr Watson urged customers not to chase the ‘headline rate’ and look at the revert rate and comparison rate on the loan.

Lenders recently started a war on five-year fixed rates to below 5 per cent signalling the tough competition to lure new customers.

Mortgage and Finance Association of Australia’s chief executive officer Phil Naylor said customers should work out whether ‘the savings on these loans are worth it.’

‘You need to look at the whole cost of the loan and not just the interest rate,” he said.

Australian Finance Group’s chief executive officer Mark Hewitt said fixed loans spanning several years were the most popular for customers who opt to lock in their loans.

‘A one-year fixed rate is similar to an introductory loan rate,” he said.

‘Two to three-year fixed loans are the most popular and three-year fixed loans are the real battleground at the moment.’

The Reserve Bank of Australia’s board meet on Tuesday and it is expected they will keep the cash rate on hold at 2.5 per cent where it has remained since August last year.

Posted by News Limited Network on 31st August, 2014