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The window of opportunity to break a fixed home loan has arrived for some Australians who locked in a high rate last year, according to Australia’s best financial comparison website RateCity.

Even after considering break fees to switch from a current fixed loan, many Australians could be substantially better off, RateCity research shows.

Many Australians are still paying around 9 percent interest p.a. on their home loan if they fixed between March and October 2008. Monthly repayments for a typical $300,000 loan at this rate are about $2,518.

Switching to today’s current average variable rate of 5.5 percent p.a., repayments would be about $885 less each month than the 9 percent average rate of last year – at $1,842. And compared to a three-year fixed rate loan at today’s benchmark of 7.03 percent p.a., repayments would be about $2,126. (see graph below).

Damian Smith, RateCity’s CEO, said there is good news for these home owners to make significant savings.

“Those Australians who locked in a fixed rate last year could find themselves much better off if they compared current rates on the market,” he said.

“As fixed interest rates have been rising since April and variable rates have stayed low, break fees to cancel fixed home loans are the lowest they have been in almost a year.”

Break costs vary between lenders but are generally calculated by the amount of interest the lender will lose from terminating the contract before the fixed period is finished.

For example, if you started a three-year fixed home loan at 9 percent p.a. in August 2008 and have $300,000 left on your loan, the lender would calculate the remainder of the two years fixed period by either their current two-year fixed rate or the Money Market rate. For this scenario, if the lender chose to deduct their current two-year fixed rate of 6.6 percent from your 9 percent rate, you would be charged the difference (2.4 percent) for each year remaining of the loan amount.

This would equal 4.8 percent of the $300,000 loan balance, which is a $14,400 break cost.

“The current average variable rate for a typical $300,000 home loan is about 5.5 percent p.a., which means you could save $885 each month or over $10,000 a year by switching from last year’s fixed rates to a variable rate,” said Mr Smith.

“After paying the $14,400 break cost for the above example, you could still be about $8,800 better off after just two years with a variable interest rate. The risk with a variable rate is that it can rise so it is all about timing when choosing to go variable or fixed.”

Mr Smith said if those Australians who locked in a high fixed rate last year and made the switch to a variable home loan, but kept their repayments at an equivalent high rate, their savings would be far greater.

“If you were to pay $2,500 per month on a $300,000 loan instead of the minimum $1,850 for a 5.5 percent p.a. variable rate, you could potentially save over $117,000 over the life of a 25-year loan. That would also reduce the loan by 10 years and seven months!”

Australians should always read the product disclosure statement to make sure the loan suits their needs, and carefully look at all costs for loans as some loans may have restrictions or penalty fees on extra repayments.