Fixed home loan interest rates have never been lower. In fact, they're even beating variable rates now. On this page you can compare competitive fixed rate home loan offers from lenders large and small.
Australian home loans have two rate types: fixed and variable. The clue is in the name. Variable rates can rise and fall at the lender's discretion. Fixed rates don't change during an initial "fixed" period (usually between one and five years).
But there's a little bit more to it than that. Here are the quick facts on fixed home loan rates:
Cost. A fixed interest rate is typically higher than a variable rate, though that's not true at the moment.
Flexibility. A fixed rate mortgage is less flexible. You might not be able to make extra repayments and there may be higher costs for leaving the mortgage (to refinance). Always read the fine print.
Features. If you're looking for an offset account with your loan then a variable rate might be a better option for you. Fixed rate loans with offset accounts are comparatively rare.
What happens when the fixed period on my interest rate ends?
You need to look at the revert rate. This is the variable interest rate that your fixed loan will switch to after the fixed period.
It might be higher than your current fixed rate, but it could be lower too. It depends on your lender, the product and the position of rates in the market at the time. If the revert rate is high, you should probably refinance your loan to a lower variable rate or ask your lender for a discount.
How do I compare fixed rate loans?
To find a good fixed rate product look at the following:
A low interest rate. For any mortgage a lower rate will save you money. With fixed rates, borrowers typically hope that they can lock in a good rate now and be protected if rates rise. It's worth looking at variable rates and comparing the two.
Low fees. Always pay attention to a loan's fees, especially annual or ongoing fees.
Length. Fixed rate borrowers have to choose between one-, two-, three-, four- and five-year fixed rates. Most loans give you multiple options, with different rates for each. Shorter fixed periods are typically lower, so one-year fixed rates are more competitive than five-year fixed rates.
Should I fix?
Let's be straight up: most Australians go for variable rate loans. According to recent data from Mortgage Choice, only 14% of its loan applicants opted for fixed rates. In other words, 86% of borrowers chose variable rates.
But there are some good reasons to fix right now. The main reason being fixed rates have never been cheaper. Let's look at the pros and cons of fixing.
The benefits of fixing
The biggest advantage of a fixed rate is that your 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 if variable interest rates rise, you might end up with a better rate than the average. But rate changes can be hard to predict.
The disadvantages of fixing
There are several reasons why fixed interest rates are less popular in Australia:
Limited features. Fixed rate loans don't have a lot of flexibility compared to variable rate mortgages. Most lenders don't offer fixed home loans with 100% offset accounts.
Lenders calibrate their fixed rate products in anticipation of changes to the official cash rate, which affects variable rate loans.
If you fix your rate and then variable rates drop you'll end up worse off. But there are times when fixed rates go lower than variable ones. Look at the graph below.
In the later half of 2019 the most competitive fixed rates were actually equal to their variable counterparts. Now it's changed again.
The key thing to understand is that a fixed rate loan is about balancing a good rate with certainty about your repayments. If you're happy with the rate and don't think you'll need to refinance soon then fixing is not a bad idea at all. Just accept that if variable rates drop you may have to wait a while to refinance and take advantage of a lower rate.
If you're unsure about going with a fixed or variable rate many lenders allow you to split your loan into fixed and variable portions. This essentially lets you hedge your bets. Calculating the best split option for you can be complicated, your lender or a mortgage broker can help you do this.
Richard Whitten is Finder's senior home loans writer. He helps Australians understand the ins and outs of mortgages so they can find lower rates and make smarter property decisions. Richard trained as a high school English teacher at the University of Sydney, but found that mortgage management was more rewarding than classroom management. Before working at Finder he lived in Seoul, where he edited textbooks and ran communication courses for Korean corporations.
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