In some countries, like the USA, it's possible to fix a mortgage for 20 or 30 years. This is not the case in Australia, where lenders typically offer fixed rate terms of between 1 and 5 years. If you really do want to fix for the long term, some Australian lenders will let you lock in a rate for up to 10 or maybe 15 years. But you will end up with a much higher interest rate and it's probably not worth it.
Why aren't 30-year fixed rates offered in Australia?
The main reason 30-year fixed rates don't exist in Australia is the lack of a well-developed secondary mortgage market.
In the United States, home loans are guaranteed by two government entities: the Federal National Mortgage Association, or Fannie Mae, and the Federal Home Loan Mortgage Corporation, or Freddie Mac. These government agencies buy home loans from lenders, bundle them as securities and then sell the securities to investors.
Because of this, lenders don't hold risk on their balance sheets for long terms. The government assumes the risk for the home loans, allowing lenders to move the loans off their books and raise money for new lending.
No such entities exist in Australia, so lenders are hesitant to lock in rates for 30 years with the knowledge that those mortgages will have to be held on their books for the entire loan term.
What is a 30 year fixed rate home loan?
A fixed rate home loan has a flat interest rate that doesn't change for a set amount of time that is agreed upon between you and your lender. In countries like the USA, home buyers can choose fixed rate home loans for long periods of time including the popular 30 year fixed rate home loan. This allows them to plan out their payments and set monthly budgets accordingly.
Currently, you'll be able to find fixed rate home loans in Australia for a maximum of between 10 and 15 years. You might also be able to extend your fixed rate loan for another 15 years once the original term is up. This basically gives you the 30 year fixed rate that Americans enjoy. But it is rate and most mortgage brokers won't advise fixing for this long. You will have a much higher interest rate for years, with minimal upside.
The risks of lengthy fixed term home loans
Most people fix their home loan rate because they want to know exactly how much they have to pay each month and forget about rate rises. But when you fix for a very long time lenders charge higher interest rates. And there are other problems with long fixed terms.
If you decide you want to sell your property or refinance your home loan, a long fixed term makes that harder. This is because lenders charge a fee when you break a fixed rate home loan before the fixed term ends. Breaking a fixed rate can mean selling, refinancing or repaying the loan early. The longer your fixed term, the more expensive it is to break it early.
There are always factors to consider when choosing a home loan so there are obviously things to take into consideration when choosing long-term fixed rate loans. You should first decide if a fixed rate home loan is best you and your situation.
Marc Terrano is a lead publisher and growth marketer at Finder. He has previously worked at Finder as a publisher for frequent flyer points and home loans, and as a writer, podcast host and content marketer. Marc has a Bachelor of Communications (Journalism) from the University of Technology Sydney. He’s passionate about creating honest and simple reviews and comparisons to help everyone get value for money.
While getting a 10-year fixed rate home loan might be a good idea if you want to keep your repayments the same over the next decade, you will pay more if interest rates drop.
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