Why it might be a good time to lock in your loan

In the US you can lock in your mortgage for 30 years at 3.29%. Here we're a little more reluctant to fix our home loans beyond five years (10 years is the maximum a lender would offer).

You could argue that we are a nation of risk takers, preferring to be carried by the market, but I say it's got more to do with the fact that we're just plain scared of committing.

And rightly so! RateCity research shows that over the past 20 years variable rate borrowers were better off than those who opted for a fixed rate 63% of the time.

If it weren't for interest rates on investment loans increasing because of APRA's crackdown, then I too would have been caught out on locking in my investment loan. Right now I'm still paying 0.35% less than what my existing lender is charging for new five-year fixed loans.

That's the positive slant. The negative is that if I had waited to lock in until now and was willing to refinance to, say, Greater Bank's Ultimate five-year fixed home loan, I would pay just 3.99%.

The question now is, if you haven't yet locked in, should you? Fixed-rate loan demand has been declining, which could very well be a sign that our timing about not locking in is wrong.

According to Mortgage Choice's latest national home loan approval data, fixed-rate home loans accounted for 23.89% of all loans written in June - down 0.52% on the previous month. With rates at historic lows and the fact that most banks factor in possible future rate cuts to their pricing, RateCity data insights director Peter Arnold says now may not be the worst time to lock in, even if there is another rate cut on the cards for 2016.

Despite the cash rate remaining steady last month, banks have cut rates on close to 200 home loans.

"There is a fixed-rate war being waged at the pointy end of the market, with some lenders dropping their three-year fixed rates to 3.67% and their five-year fixed rates to as low as 3.99% - that's fixed until mid-2021," says Arnold.

While these rates are certainly tempting if you can find a fixed loan that is also flexible, then the decision to lock in becomes easier. Believe it or not, most fixed-rate loans are flexible, although it's the smaller players that have stronger niche fixed products.

Lenders such as Adelaide Bank and CUA (Credit Union Australia) offer a 100% offset facility against their fixed-rate home loans. Heritage allows you to pay any extra amount into your fixed-rate home loan, as long as you don't pay it out in full. Therefore you could pay $499,999 off a $500,000 fixed-rate mortgage without incurring a break fee.

Of the 1036 fixed-rate home loans on RateCity's database, 846 of them allow extra repayments, where the maximum lump sum is capped at $30,000.

Just under half of the fixed-rate loans offer an offset account, including 424 with full offset and 61 with partial offset. The typical discount offered on fixed-rate package loans is between 0.1% and 0.2% and 708 of the 1036 fixed-rate home loans have a redraw facility. So much for so-called inflexible fixed-rate loans.

If you really want to maximise the extra repayments you can make without being penalised, then one tip Money often gives is to split your fixed loan into two or even three accounts. This way you double or triple the amount of your penalty-free allowance.

Of course, the ultimate price you pay for certainty is that if, for whatever reason, you need to break your contract you will pay.

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