A major bank reduces interest rates, but there is a condition to consider.

NAB has taken a major step as the first of the big four banks to reduce their fixed-term interest rates. This could potentially be a signal that an official rate drop might be on the horizon. As the nation's third-largest home loan lender, NAB has slashed their three-year fixed rate for owner-occupiers paying principal and interest by a significant 60 basis points, bringing it down to a competitive 5.99 per cent. However, their variable rate remains unchanged.

During the pandemic, fixed-rate mortgages were quite common as the official cash rate was hovering at 0.1 and 0.25 per cent. But now, with the near-historic low rates, they have become less popular. According to ABS, in July 2021, 46 per cent of new and refinanced loans opted for a fixed rate. However, the most recent data shows that this number has dropped to a mere 1.7 per cent. Sally Tindall, the research director at RateCity, believes that it would be challenging to see a sudden surge in the demand for fixed rates. Nevertheless, NAB's competitive rate of under 6 per cent is a strategic move to test the market's response.

However, committing to a fixed rate for three years is a significant financial decision, especially in a time where the future of the cash rate remains uncertain. The RBA's Bullock has stated that the cash rate is currently in a "restrictive territory", which indicates a potential decrease in the future. However, even the RBA does not have a clear idea of when this will happen, by how much, and whether there will be any increases before then.

While an official rate cut may still be months away, recent higher-than-expected inflation data has sparked speculation of a potential rate increase. However, NAB's decision to lower their fixed rate suggests that they believe the RBA's next move will be a cut, rather than a raise. According to Mozo finance expert Rachel Wastell, NAB's aggressive rate cut of 60 basis points could be a response to ANZ's acquisition of Suncorp. It's also a strategic move to attract customers by anticipating future cash rate reductions.

However, Wastell cautions borrowers considering longer-term fixed rates to be careful. In the future, when the cash rate does drop, those on fixed rates might end up paying more than those on variable rates. She reminds borrowers that banks are experts at predicting cash rate movements, so locking in a fixed rate is essentially betting against the house.

The Reserve Bank's next interest rate decision is scheduled for August 6. In the meantime, you can watch every moment and every medal of the Olympic Games Paris 2024 live and free on Channel 9 and 9Now. You can also watch every event ad-free and in 4K on Stan Sport.

Please note that the information provided on this website is general in nature and does not constitute personal financial advice. It has been prepared without considering your personal objectives, financial situation, or needs. Before making any decisions based on the information on this website, it's essential to assess its appropriateness in relation to your objectives, financial situation, and needs.

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