How to make the most of low rates

It's now been more than 12 months since the Reserve Bank moved interest rates. And if we have made it to September without a shift, then it will be the longest period - 390 days - with rates unchanged in more than seven years.

But that hasn't stopped banks slashing the cost of fixed-rate mortgages. In the lead-up to the August RBA meeting, RateCity showed 71 home loans with a five-year fixed term had interest rates slashed by as much as 0.8%, and 0.54% on average. That's more than we'd typically see passed down by the RBA in any given month.

At the time of writing, it's possible to lock in a five-year term from as low as 4.84% and a variable rate from 4.54%. So what should borrowers do now?

Moving from the current average standard variable rate of 5.4% to a five-year fixed rate of 4.99% cuts monthly repayments by $72 on a typical $300,000 home loan and saves borrowers $4320 over the first five years. That's assuming variable rates remain at record lows and excluding any fees.

It would be extremely unusual for rates to remain at these levels for five years - which is the average lifespan for a mortgage before people sell their home, repay their loan or refinance. If you'd like to make your repayments predictable, fixing for five years will seem a very good option.

With a fixed rate you are betting against the bank that rates stay where they are. Money markets predict there's a 50-50 chance that the RBA will cut the cash rate again. If you fix now you might miss out on these savings - that's if they eventuate.

If you're someone who wants certainty, the experts say now is probably a good time to lock in a competitive rate. If you like the sound of some certainty but also want to hedge your bets, an increasingly popular option is to fix part of the loan.

At the very least, I'd urge borrowers to review their current home loan situation. My advice is that if your home loan rate starts with the number 5, then get out there and find a better deal.

A 4.99% rate is sharp and gives a great amount of certainty over a relatively long period - in a cycle in which most people would assume that interest rates are going to go up over time and not fall any further.

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