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30 year fixed rate home loans
30-year fixed rate home loans don't exist in Australia. We explain why.
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Home loans fixed for 20 and 30 years offer long term certainty for homeowners in some parts of the world, like the USA, but they aren't offered in Australia. But if you're interested in a lengthy fixed rate home loan you can still find one through certain lenders in Australia. These lenders can provide you with a fixed rate home loan for a maximum of 15 years.
While this may sound ideal in terms of stability and certainty, it's crucial that if you want to fix for a long period of time you seek professional financial advice.
Long term fixed rate home loan comparison
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.
Why aren't they 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.
How do long-term fixed rates work?
In spite of not offering 30-year fixed rates, many Australian lenders do offer longer-term fixed rate mortgages.
A long-term fixed rate home loan works in the same way that any other fixed rate home loan does.
Fixed rate loans offer stability for the length of the loan but they sometimes are without the additional features of shorter fixed rate loans or their variable loan counterparts. Long-term fixed rate home loans, like those offered in the States, usually are without features like redraw facilities and offset accounts. These loans may also take away your ability to make additional repayments to pay off your loan faster or they may set limitations regarding how much in extra repayments you can make each year.
Things to consider about lengthy fixed term home loans
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.
If your situation is suitable for fixed rate home loans start to think about other factors that may affect you. If there is a possibility that you'll sell your property during the fixed term you may want to reconsider choosing a lengthy fixed rate home loan. Lenders usually tack on heavy fees for breaking this type of loan contract. You should also consider the limitations put on additional repayments. If you want to have flexible repayments on your loan this long-term option isn't for you. Finally, if you'd like to benefit from additional features like redraws, offset accounts, credit lines, or repayment holidays you should choose another loan option since lengthy fixed rate home loans usually don't offer these benefits. If these benefits are offered by a lender they are usually with conditions and expensive fees.
How to compare fixed rate home loans
| Compare a range of loans from a variety of lenders | Whether you choose the maximum 15 year fixed rate home loan or another type of long-term fixed rate loan you should compare loans available from the various lenders, including not just banks but also building societies and credit unions. This will help you get everything you want for the best possible price. Also consider speaking to a broker and ask about the features associated with each available loan and look at them side by side to pick the best deal for your situation. |
| Compare interest rates | When comparing loans, look to the rate amount first since this is the main factor that you're interested in. Also take into account the comparison rate, which factors in some of the fees associated with the loan. |
| Consider fees | You'll also want to look at all out-of-pocket fees such as application, legal, valuation and settlement fees. Finally, you'll want to compare the offered additional features. If you want a loan that offers you flexible repayments be sure to look for one that has the best deal regarding that feature. By comparing loans you'll be able to find exactly what you're looking for at the best possible price. |
While 30 year fixed rate home loans are popular in other parts of the world they aren't offered in Australia. You may, however, be able to find a 15 year fixed rate loan with an option to extend your rate for an additional 15 years.
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