How to Get a 30-Year Home Loan Fixed at 2%

Hi Scott,
 
I’m an Australian expat living in the United States. In the US the vast majority of people have either 15-year or 30-year fixed-interest-rate mortgages, with most of these loans having very few restrictions or prepayment penalties. Prior to the recent Federal Reserve interest rate rises, you could lock in a mortgage for 2% to 3% per annum for the entire loan term (and if rates dropped, you could also refinance and get a lower rate!). It isn’t clear to me why the Australian banks can’t offer these products. Maybe all this is not the fault of the RBA (they’re just trying to do their job of managing inflation) but of the Australian banks!
 
Matt
 
Hi Matt

Yes, our banks could offer 30-year fixed-rate home loans if they really wanted to … just like I could choose to mow my paddocks with a Victa push mower if I really wanted to.
 
In reality, what works for the banks is selling simple variable rates that track the RBA cash rate. And that explains why the majority of borrowers choose a variable rate: it’s generally the cheapest deal on offer.
 
Conversely, the banks make the act of fixing your rate much more complicated and expensive. In most cases, the longer you fix your rate for, the higher the rate you pay. And you can only fix for a relatively short time (less than five years), and then you’re dumped back onto a variable rate.
 
Now the reason the Yanks can offer 30-year fixed rates, with no penalties, is that the US Government basically set it up that way by guaranteeing the loans, which the Australian Government hasn’t done.
 
Having our Government create something similar would lessen the impact of these bulldozer rate rises from the RBA and give borrowers more flexibility and security. However, it would be a huge undertaking. 
 
So the real question is whether any of our politicians could be bothered bending over, cranking the Victa, and pushing things forward.

Scott.