Thousands trapped in a costly mortgage fix
TWELVE months ago, everyone was told to cut spending to help save Australia's economy. Now the Federal Government can't get us to spend enough.
What a difference a year makes.
The Rudd Government is spending big and plunging the country into debt to give us money. It's then encouraging us to spend.
At the same time, mortgage repayments are falling, with last week's drop in interest rates giving households even more money to spend.
But not everyone is smiling.
Last year's escalating interest rates saw about 60,000 households fix their mortgage repayments, some as high as 9 per cent, according to analysts at financial research firm Canstar Cannex.
Some analysts at the time were expecting mortgage interest rates to top 10 per cent as the Reserve Bank of Australia cash rate hit a 14-year high of 7.25 per cent.
Instead the cash rate fell and last week hit 3.25 per cent, the lowest level in four decades.
Senior Canstar Cannex analyst Harry Senlitonga says the 4 percentage point drop could see those with fixed rate mortgages on a typical $250,000 loan over 25 years paying up to $636 a month more than those on present variable rates.
The bad news is the cost of breaking out of a fixed rate mortgage can be even more than any saving expected from returning to a variable rate.
Breakout costs are the fees a lender can charge for terminating any fixed rate agreement.
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