Sovereign drops floating rate

Paul Bravo, Director of Sovereign Financial Services Limited, announced today that Sovereign would be dropping its floating home loan interest rate to 7.5% pa, which continues to undercut other major lenders.

Thursday, May 17th 2001, 3:51PM

Sovereign drops floating rate, predicts fixed rates will begin to rise.

Paul Bravo, Director of Sovereign Financial Services Limited, announced today that Sovereign would be dropping its floating home loan interest rate to 7.5% pa, which continues to undercut other major lenders.

"While there may be a further cut in the Official Cash Rate, I think we are nearing the bottom of the interest rate cycle," Bravo said.

"With one-year fixed rates available at up to 1% pa below some floating rates, now could be a good time for borrowers with floating rates to consider fixing a portion of their loan.

"Many lenders are pricing fixed rate loans aggressively low to attract new customers, but bargain rates are unlikely to last long. Fixed rate margins are getting very tight and I pressure will start to mount for them to rise."

Bravo suggested borrowers should consider the option of splitting their loan between a floating and fixed rate.

"Fixed rates loans have limited flexibility. If you sell your house and need to repay the loan within the fixed term you may be charged an early repayment penalty, which can get quite large. There are also quite strict limitations on increasing your repayments or making lump sum payments.

"For this reason we recommend that people who take out a fixed loan should leave a portion of their loan on a floating rate. This gives them the benefits of the fixed rate loan, while still being able to make additional payments and redraw funds on the floating rate portion.

"Sovereign has long encouraged its customers to split their loans. However, in the wider market surprisingly few borrowers actually do it."

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