Fixed Home Loan Rates

When it comes to home loans there are two types of interest rates to consider, fixed or variable. A fixed interest rate stays the same over a fixed-rate term, while a variable rate can change at any time – usually because of hikes or cuts to the cash rate.

Most lenders allow borrowers to lock in a fixed rate for home loans between one to five years. During this period there won’t be any fluctuations to the amount of interest that borrowers pay on their loan. Then afterwards, the fixed rate it typically reverts into a variable interest rate, unless of course you choose to lock in another fixed-rate term.

Most lenders allow borrowers to lock in a fixed rate for home loans between one to five years. During this period there won’t be any fluctuations to the amount of interest that borrowers pay on their loan. Then afterwards, the fixed rate it typically reverts into a variable interest rate, unless of course you choose to lock in another fixed-rate term.

There are many practical reasons for getting a fixed rate home loan, including:

Rates are rising: If rates are likely to rise and stay high for a period of time, many borrowers choose to fix their loan. Predicting interest rates is easier said than done, but if you time it well, a fixed rate can be a big money saver when rates are increasing.

Get budgeting certainty: A fixed rate makes budgeting for repayments easier because borrowers know the exact amount they need to put aside each month, regardless of what’s happening to interest rates overall. With a variable rate, your lender may increase or decrease your rate, with a knock-on impact on repayments. This why some first home buyers fix their rate at the start of their loan, as they generally don't have much spare cash in those early years to weather potential rate rises.

Still get some flexibility: Even when locked into an interest rate, it’s possible for borrowers to make the most of their home loan. There may be useful features, like limited extra repayments, redraw and in some cases offset. These features mean you can enjoy certainty while maintaining the flexibility to lower your interest costs in the long run.

Overall peace of mind: A fixed rate home loan is a bit like an insurance policy. It protects you from potential costs if rates were to increase. Obviously there is a potential financial benefit to this, but more broadly it means borrowers don’t need to worry about even the potential for increases. This has a value of its own, and is why some people are prepared to pay a slightly higher rate on a fixed loan.

Refix for another term

One option for when a fixed rate home loan ends is to refix, which lets borrowers lock in a new fixed interest rate with their lender after their existing term expires. This interest rate could be higher or lower than the initial rate depending on what has been happening with the economy in the meantime.

Revert to a variable rate

Typically after a fixed rate term is finished, it will automatically turn into a variable rate home loan. The variable rate your loan defaults to may not be the best rate available from your lender, so it’s worth checking this so you don’t sleepwalk into an expensive loan. Ask your lender to switch you to the lowest rate variable loan that fits your needs.

Refinance with a new lender

Borrowers can also choose to refinance their home loan to a different lender once their fixed rate ends. For example if your lender’s rates have become uncompetitive since you fixed your rate, it could be worthwhile looking elsewhere. Changing lenders may mean additional upfront costs, but if you can secure a better rare, the savings will likely offset the switching costs.