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What Is a Fixed Home Loan Rate?

Megan Fraser Fact Checked Updated: 13 May 2020

If you’re a first-time homebuyer, you might not be sure what a fixed term home loan is and whether it meets your requirements.

A fixed rate home loan means that the interest you pay doesn’t fluctuate for a set period, generally between 1 and 5 years. Meaning, your repayments are charged at the same interest rate for that period. You, therefore, have more security knowing what your repayments will be and won’t be affected by interest rates rising during the fixed period.

Take note: ComparingExpert and consultants are not mortgage brokers. The information provided in this article is to help you make an informed decision. Please contact your home loan provider or financial institution for advice and guidance.

How do fixed rate home loans work?

With a fixed rate home loan, it might be easier to predict future repayments and avoid uncertainty. You can generally choose to fix your interest rate for up to 5 year, after which your home loan typically reverts to a variable rate. Interest rates rising during the fixed period will not negatively impact your repayments. However, you won’t benefit if interest rates decrease in this period.

How is interest on a fixed mortgage calculated?

Many factors are influencing your interest rate, including the amount you borrow, the fixed term you choose and the company you’re taking a home loan with. To calculate your fixed mortgage payments, you might want to use one of home loan calculators readily available online.

Fixed interest rate loan example

Let’s say you have a 5% interest rate on a $150 000, 25 year-mortgage and the monthly repayment is $873.50. With a fixed term of 5 years, you’ll pay the same $873.50 payment every month for 5 years, until your term expires, and your home loan reverts to a variable loan.

What happens when my fixed term home loan ends?

Generally, after your fixed term comes to an end, it automatically reverts to a variable interest rate. However, you might be able to re-fix your home loan, thus extending your term for a few more years; this will depend on your home loan provider.

You might want to investigate different home loan options about two months before your fixed term expires. Speak to your Lender or mortgage broker about your options.

How long can you fix your home loan for?

Select Lenders may offer longer terms, however, in Australia you can generally choose a:

  • 1-year fixed mortgage
  • 2-year fixed mortgage
  • 3-year fixed home loan rate
  • 4-year fixed term
  • 5-year fixed home loan rate

Take note; if you break your fixed term early, you could incur some hefty penalty fees.

What are the advantages and disadvantages of a fixed home loan?

Different lenders will offer their own unique features and benefits. However, the general pros and cons of a fixed term home loan include:

You won’t be affected by market interest rates increasing during your fixed term. You will not benefit from decreasing interest rates.
More security as you’re able to lock-in a lower rate for a set period. Less flexible. There are restrictions on being able to make additional repayments on your home loan.
More certainty on your monthly repayments. This predictability makes it easier to budget. If you end your term early, you may have to pay hefty charges known as break costs.
Choice of a fixed term (usually 1 to 5 years) to meet your requirements. Generally, a fixed interest rate is higher than a variable rate.

Who offers fixed home loan rates in Australia?

Most financial institutions and Lenders offer fixed rate home loans in Australia. However, their interest rates might differ, so you may want to compare home loan interest rates from some of Australia’s biggest home loan providers before making a decision.

How to compare different fixed rate home loans?

When you compare fixed rates from different Lenders, be sure to review their terms and conditions, unique features and their comparison rate. You might want to request a key facts sheet from the Lender as this will show you how much your fixed rate home loan will cost you over the life of the loan.

Frequently asked questions

  • How do I know if a fixed home loan suits me?

    If you want more certainty concerning your repayments, then a fixed home loan might be worth considering. However, if interest rates decrease during the fixed period, you’ll miss out on the potential savings. Speak to a mortgage provider to help you make an informed decision.
  • Where can I get the best fixed home loan rate?

    There is no ‘best home loan’ because every person’s circumstances are different, and your home loan should meet your specific requirements. Fixed rates are not the same for all lenders. Compare different fixed home loan interest rates from Australia’s biggest brands and consider their unique features and extra fees.
  • Can you refinance a fixed rate mortgage?

    Yes, you generally can refinance a fixed term home loan. However, there will usually be an extra fee required. Should you switch home loans during the fixed period, you will generally have to pay a break cost to your current provider. Consult your Lender or mortgage broker first before deciding if refinancing your mortgage is a good option for you.
  • How much will I have to pay if I exit my fixed home loan early?

    If you end your home loan before the fixed term has ended, you will usually have to pay the break costs. Break costs can amount to thousands of dollars; the exact amount will differ from provider to provider.

    Break costs are generally calculated by multiplying your home loan amount with the interest rate change, times the period left on your loan. Your Lender will generally calculate this for you on request.
  • Can I negotiate a fixed interest rate on my home loan?

    Generally, you might be able to negotiate the terms or cost of your fixed home loan. However, your Lender will typically only consider your request if you meet their specific criteria. Criteria such as, you must be currently residing in the home, own 20 per cent or more of the property, have full-time employment and have not missed any mortgage payments.
  • What is the difference between a full and split fixed home loan?

    A full fixed home loan means 100% of your home loan is fixed for the specific period you choose. A split home loan means part of your home loan is on a variable interest rate and the other part on a fixed term. Thus you can possibly benefit from both interest rate options.
  • What does 3-year fixed mean on a home loan?

    A 3-year fixed home loan means the interest you pay will not fluctuate (increase or decrease for 3 years). For 3 years you’ll have more certainty regarding your home loan repayments.
  • Are 7-year fixed mortgage rates available in Australia?

    Select financial institutions do offer a 7-year fixed home loan rates, but generally, Australians tend to fix their home loans for 1 to 5 years.
  • Can I switch from a fixed to variable home loan?

    Yes, you can generally go from a fixed to a variable interest rate. However, there might be break costs involved for ending your fixed term early. Speak to your mortgage broker or Lender for assistance.

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