Compare Fixed Rate Home Loans
Updated on 05 August, 2022
Whether you are in search of your first home loan or considering refinancing, there is one question many people will ask: to fix or not to fix?
To understand whether a fixed home loan rate is the right choice, you need to understand the benefits and limitations of individual products, and consider whether it will work for your individual circumstances.
When chosen wisely, a fixed rate loan can simplify your monthly budget and offer peace of mind; however a lack of flexibility and specific fees for some products could end up costing you money.
InfoChoice can help home owners compare not only the rates for fixed home loans, but also the features, flexibility and fees for individual products to ensure you make the best decision.
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*The comparison rates in this table are based on a secured loan amount of $150,000 and a term of 25 years. WARNING: These comparison rates apply only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and costs savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.
Monthly repayment figures are estimates only and exclude fees. Based on the advertised rate, 25 year term and loan amount entered. Actual repayments will depend on your individual circumstances and interest rate changes. Interest only loans – the monthly repayment figure is applicable only for the interest only period. After the interest only period, your principal and interest repayments will be higher than these repayments. Fixed rate loans – the monthly repayment is based on an interest rate that applies for an initial period only and will change when the interest rate reverts to the applicable variable rate.
Fixed home loan: what is it?
As the name suggests, a fixed home loan rate as an interest rate that is set for a fixed period, typical for one to five years. During this period your home loan repayments will be locked in at a set amount, making it easier to budget and providing peace of mind in the event that interest rates rise.
Banks have fixed rate loans available for varying terms (up to 10 years) but the most popular period for fixed rate home loans are between one and three years.
Fixed home loans can have a higher interest rate than variable rate options, but aren’t susceptible to interest rate changes so could ultimately save you money in a volatile financial market.
Most banks, mortgage brokers, building societies, credit unions, and Australian lenders offer fixed rate home loans. When you apply for a fixed interest rate on your home loan, your lender will typically offer you a rate lock. This is done to protect you in the event the interest rate changes in the time it takes to move from application to settlement, which could be up to a month.
Should I consider a fixed home loan?
The most important aspect of a fixed rate loan is balancing a rate you can afford against the certainty of your repayments. If you’re happy with the rate, want the surety of set payments and don’t think your circumstances will change within the term, then a fixed rate loan could be a good idea.
The biggest advantage of a fixed rate is that your weekly, fortnightly, or monthly loan repayments won’t change. This can offer you peace of mind and certainty around your repayments. You can budget accordingly and then forget all about rate changes until the fixed period ends – and that can be important for first home buyers or specific stages of your life where disposable income is limited.
Furthermore, if variable interest rates were to rise, you might end up with a better rate than the average; however it should be noted that rate changes can be hard to predict.
On the other side, there are several reasons why a fixed home loan may not work for your needs.
Three main considerations are:
- Limited features: Fixed rate home loans generally don’t have a lot of flexibility compared to variable rate home loans. For example, many will not allow you to make extra repayments or cap extra repayments to a certain amount.
- Break fee: If you decide to end a fixed rate loan before the specified term, you may face a break fee. This can cost a few hundred dollars or potentially thousands.
- Rates could drop: If the Reserve Bank of Australia (RBA) cuts the cash rate you will not benefit from the lower rate that will applied to variable home loans.
It is also worth noting that most home loan interest rates can only be fixed for a limited number of years, and afterwards will revert to the lender’s standard variable rate. If interest rates have gone up during your loan’s fixed term, you could be facing an increase in repayments, so it’s best to plan ahead and know what the revert rate will be. Naturally, you could look to refinance with your lender or seek a different product from a new lender.
Who is most likely to benefit from a fixed home loan?
Fixed home loans tend to suit people who like to plan ahead and want the stability of knowing exactly how much their home loan repayments will be over the set term.
First home buyers often find the security of fixed rate home loans appealing as the stability over the first few years of a loan can help borrowers manage their household budget and keep finances under control while they build up their equity.
Investors can also find the stability of fixed rate home loans useful as the loan repayments won’t increase beyond the property’s rental income during the fixed period. This will ensure steady income from the investment.
In either case, borrowers should remember that when their fixed rates expire, they will revert to the lender’s standard variable rate.
How do I compare fixed rate loans?
A good fixed rate home loan will need to suit your circumstances. As a starting point, consider the following:
- A low interest rate: For any home loan interest rate, lower is obviously preferable as it ultimately saves you money. When looking at a fixed rate loan, you are aiming to lock in a good rate and have that protection if interest rates rise.
- Low fees: As with any loan product, be sure to look for all fees; particularly any annual or ongoing fees, or – should you think you may need to end the loan before the fixed period – a break fee.
- The fixed length: Fixed rate borrowers generally choose between one to five year fixed rate loans. Most loans give you multiple options, with different rates for each. Rates are generally more competitive for shorter fixed periods. For instance, one-year fixed rates are more competitive than five-year fixed rates.
- Additional features: As you will read in the next section, some fixed home loan products now have similar features to variable loans, such as the ability to make extra repayments, access to an offset account or a redraw facility.
What is a comparison rate?
Before you start comparing fixed rate home loans, you should familiarise yourself with comparison rates.
Lenders charge interest on their mortgages as well as fees.
These fees including application fees and ongoing fees such as annual fees, late payment fees and fees for making extra repayments, all make up the comparison rate.
The importance of knowing the comparison rate is that the high fees charged on a particular loan, may mean you end up paying more for your property than if you’d decided on taking out a mortgage with a higher interest rate and lower fees and charges.
Lenders are required to display Comparison Rates alongside their advertised interest rates, to illustrate the overall cost of different loans more clearly.
A Comparison rate is a great way to gauge the affordability of different loans.
It is worth noting that while Comparison Rates do offer a comprehensive guide to fees and charges, there are some that aren’t included.
You should research all options by reading the product disclosure statement for your chosen home loan. This should be available on your lenders’ website.
Can you get additional features with a fixed rate home loan?
Many fixed rate home loans are very rigid; however there are some on the market which offer features that may be important to your individual needs. As with any home loan product, there are always conditions, and so you should consider them thoroughly before committing to a fixed rate loan.
- Extra repayments: With a fixed rate home loan you may be able to make extra repayments but generally there will be a cap or limit to how much you can make each year or over the term of the loan.
- Redraw: If you can make extra repayments you may also have the ability to redraw this amount. When it comes to fixed rate home loans, lenders will often charge a fee for this and a minimum redraw amount.
- Offset account: An offset account works just like a regular savings or transaction account, but with one major difference – it’s linked to your mortgage. Any money that you pay into an offset account is included in the interest charge calculations. The more money you have in there, the more you save on interest charges. Fixed loans will have an offset loan facility, however compared with a variable rate home loan where you can offset 100% of the loan amount, with a fixed rate home loan you will only be able to offset a portion (generally 10-40%) of the loan.
- Repayment flexibility: Similar to a variable rate loan, some fixed rate home loans will enable you to select the repayment frequency that suits you. Options include weekly, fortnightly and monthly repayments.
- Loan-to-Value ratio: Fixed home loan rates have different LVR (loan to value ratio) requirements to variable rate loans so while you might need an LVR of 80% for a variable rate loan, that could shift to an LVR of 90% when applied to a fixed term loan.
- Split loan: Most fixed rate home loans will allow you to split a portion of the fixed rate with a variable rate. There may be some limits to how much you can split but it can mean that you get the benefits of rate certainty for the fixed portion of your loan and added flexibility on the variable.
Fixed rate versus variable rate
While fixed rates offer stability, variable rate home loans are popular in Australia because they offer flexibility.
Variable rates typically offer lower exit fees, more flexible repayment options and features such as offset accounts and redraw facilities. They are an excellent choice for anyone looking to purchase a new home, make a property investment, or to refinance their existing home loan.
Variable rate home loans are a less secure option than fixed rate home loans, yet it’s worth noting that variable rate mortgages don’t regularly change unless there is movement in the official cash rate.
Still, if you are looking for stability and peace of mind, especially in a low rate environment, fixed rate home loans may best suit your needs.
What personal considerations should I make?
If you are considering a fixed rate home loan, the following questions could help your decision making process:
Is it likely you could make extra repayments?
Before committing to a fixed rate, it’s important to understand what, if any, restrictions the bank puts on making extra repayments. Some products will not allow you to make any extra repayments which would ultimately cost you money. Other lenders may charge a fee or limit the number of extra repayments a customer can make during their fixed-rate period.
Would cash flow certainty give you peace of mind?
One advantage of taking out a fixed rate home loan is that the borrower knows what their repayments will be each month or fortnight, because the interest rate stays the same for the duration of the fixed term. This could be an attractive option that could make budgeting easier and support cash flow; particularly for first home owners or investors.
Is there a chance you might need to leave the loan early?
Most fixed rate home loans will come with a ‘break fee’ if you want to end the loan before the fixed period expires. This cost could be hundreds up to thousands of dollars.
While there are things in life you can’t control, you may have longer term plans that could change your circumstances and force you into prematurely ending the fixed term home loan. For example, if there is a chance that you might sell your house before the end of the fixed term, you will be looking at a break fee.
It’s a good idea to confirm whether the lender allows early repayment of the loan and be clear that if market interest rates fall a borrower could be up for a cost, potentially in the thousands of dollars, to compensate the bank.
Do you know what the revert rate looks like?
After your fixed rate loan period ends, you will shift to the ‘revert rate’.
The revert rate will often be higher than what you have been paying through the fixed term. As such, you will need to plan ahead, and be willing to refinance to retain a competitive interest rate.
Are you comfortable with the repayment amount?
This may sound obvious, but fixing a home loan interest rate is about locking in repayments at a level that suits your situation, rather than trying to guess interest rates movements in the future.
If you are unsure whether or not to be entirely locked into a fixed-rate term for a number of years, another option could be to consider splitting a home loan. This means that part of home loan will be charged at a fixed rate for a period of time while the rest is charged at a variable interest rate.
How do I decide on the fixed rate home loan term?
If you have decided that a fixed rate home loan is best for your needs, the main consideration will be how long you decide to lock in for. This should ultimately depend on your plans for the next one, two, three or five years.
If you think you may need to refinance the property through the fixed term, or require a degree of flexibility in your repayments, then you should consider whether a longer term could disadvantage you. Remember that break fees will be applied if you terminate the fixed rate loan before the end of the fixed term. These break costs can be expensive so you need to consider all aspects before committing.
Does the length of the loan affect the interest rate?
The fixed-rate period is important. While the term of the fix means your repayments are unaffected during this period of time, the overall length of your home loan’s term will have an impact and can affect how much interest you’ll pay over the lifetime of the loan.
Most mortgages are 25 or 30 years in length, however shorter and longer options are available from some lenders.
With a shorter term home loan you will make less repayments, with each repayment accounting for a larger percentage of the loan’s principal. A short home loan will generally be defined by higher month to month repayments. This also means fewer interest charges and less interest paid in total over the lifetime of the loan.
Conversely, stretching out your home loan over a longer term means making more repayments, to pay off a smaller percentage of the principal. It is more affordable to do it this way on a month to month basis, however the interest charged will increase and will cost you much more than a shorter term fixed loan.
What happens at the end of the fixed rate period?
At the end of your fixed term, you lender will generally move your home loan to the ‘revert rate’. Revert rates are typically higher, so you need to be ready for an increase in your prepayments. Alternately, you can choose to commit to another fixed rate, switch to a variable home loan, or refinance.
Could a fixed rate home loan be cheaper even after paying break costs?
Breaking a fixed rate loan to refinance to a lower rate can incur significant break fee costs; however if the potential repayments of a new loan are significantly lower then you current payments, you could end up saving money in the long run.
Fixed rate home loans: advantages and disadvantages
As with any product, there are advantages and disadvantages to fixing your home loan rate.
- Repayments remain consistent from month to month
- Simplified budgeting
- A fixed rate loan is a secured loan and is thus protected from interest rate rises
- Interest rate cuts are not a factor and fixed rat holders gain no benefit
- Repayment flexibility is limited
- Break or exit fees can be costly
Fixed Rate Home Loan
Fixed rate home loans give borrowers the stability of set repayments for a set period, regardless of market fluctuations. If you’re considering a fixed rate home loan, you may want to look for one that offers additional features that might work for you, such as portability, redraw facilities or an offset account.
Here you can compare the rates, features and fees of different fixed rate home loans from a wide range of banks and lenders. Don’t forget to check the comparison rate, which helps you identify the true cost of each loan by factoring in the interest rate plus most fees and charges.
Fixed Rate Home Loan FAQs
What is a fixed rate home loan?
A fixed rate home loan allows you to lock in an interest rate on your loan (generally for one to five years). One of the benefits of this loan type is that it protects you against interest rate rises, however it also means you won’t benefit from drops in interest rates.
What is a variable rate home loans?
A variable rate home loan means you are repaying your home loan at an ever-changing interest rate, depending on how the official cash rate performs, your lender’s rate, and your LVR.
What is a split home loan?
As its name suggests, a split loan is partially fixed and partially variable. This allows you to pay a fixed interest rate on a portion of your loan repayments, while the rest of your loan is subject to variable interest rates. A split loan provides some certainty with repayments compared to a fully variable rate, however does offer some savings if interests rates drop.
Split rate home loans take on the advantages and disadvantages of both fixed rate and variable rate home loans. This type of home loan may suit you if you want to be certain of the cost of regular repayments, as well as take advantage of interest rate drops on the other part of your loan. Again, there is inflexibility on the fixed portion, and uncertainty of interest rate changes for the variable portion.
How do fixed rate home loans compare on fees?
As with any home loan, you need to factor in some common fees. These may be upfront, regular ongoing fees or any termination fees.
- Application fee
- Service fee (monthly or annual)
- Discharge fee
The biggest difference in fees for a fixed rate home loan is if you need to terminate the loan early. With a fixed rate loan you will be charged a ‘break fee’ and it can be very high.
The break fee is calculated by your lender based on how much you have left of your term and the rate you locked your loan. This can be very difficult to calculate in advance; so it is recommended to get your lender to provide an estimate before committing to any final decision.
What happens if I want to sell my property during the fixed period?
Selling your property will end the loan, so you will be liable to the lender’s break fee. This fee will be calculated by how long you have left on the loan term and can be thousands of dollars.
What if I want to refinance during the fixed rate period?
The same as selling your property, refinancing will end your fixed rate home loan. This will result in costly break fees to terminate the agreement early.
Can I access extra equity if my property has increased in value during the fixed rate term?
This is obviously subject to the lender’s terms and conditions; however many do allow for this option. While the fixed rate means you are bound to that lender and the remaining fixed rate term in place, you can access the equity by establishing a further or secondary loan against that security property.
Fixed Rate glossary of terms
|Exit cost||Otherwise known as a ‘break fee’, the exit cost is a fee charged to borrowers if they exit their home loan early. This is usually applied to fixed rate home loans.|
|Fixed interest rate||Fixed interest rates are interest rates that are locked in for a certain period of time, usually between one and five years.|
|Lenders Mortgage Insurance (LMI)||An insurance that protects the home loan lender, if a borrower defaults on their payments. An LMI is typically applied to home loans where the loan to value ratio (LVR) is higher than 80%, or the borrower has a deposit of less than 20%.|
|Loan to Value Ratio (LVR)||Most lenders require an LVR Of 80%, this means the borrower will pay 20% of the value of the property. Essentially, it is the size of a home loan compared to the value of the property.|
|Offset account||An offset account is a transaction bank account connected to your home loan. The money from this account is used to offset your home loan, which means you’re only charged interest on the difference between the total loan balance and the amount offset. For example, if you owe $200,000 on your home loan but you have $20,000 in your offset account, the bank would only calculate interest on $180,000.|
|Redraw||A redraw facility allows mortgage holders top access extra repayments made into their home loan. Redraw balances can help reduce interest on your home loan.|
|Split Rate Home Loans||A split home loan is when you divide your loan into two parts. This means a portion of the loan could come under a fixed interest rate with the remainder being variable.|
|Variable Rate Loan||Variable home loans are defined by the potential for interest rate fluctuations. The variable interest rate may be changed regularly by a lender and is usually dictated by the Reserve Bank of Australia’s (RBA) official cash rate and changes in market interest rates. Due to interest rate fluctuations, your monthly repayments could vary from month to month. With lower exit fees, more flexible repayment options and useful features like offset accounts and redraw facilities, variable home loans have been found to be the preferred choice for many Australians.|