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What are the benefits of a 2-year fixed rate home loan?
- Repayment certainty. The main reason borrowers fix is so they know their repayments won't change. This means you can budget accordingly.
- Forget about rate rises. In times of rapid rate rises, fixed rate borrowers don't need to worry. While it's true that fixed rate loans are typically higher than variable rates, not having to worry about a rate rise just makes life a little simpler.
- 2 years is a good sweet spot for many borrowers. How long you fix your rate depends on your goals and needs. For some borrowers, fixing for 1 year is simply not long enough. Fixing for a longer term like 4 or 5 years means a higher rate and less flexibility if you need to exit the loan. 2 years could be the perfect balance for some borrowers.
How do 2-year fixed rate home loans work?
A 2-year fixed rate home loan is like any other home loan: you borrow money and repay it over the loan term. The only difference is your interest rate won't move at all for the first 2 years of the loan.
After that, your loan reverts to a variable rate loan. Variable interest rate home loans can change at any time as lenders respond to changes in money markets and the overall economy.
Most lenders offer fixed rates between 1 and 5 years. Learn more about different fixed periods with these guides:
Are 2-year fixed rate loans higher than variable rate loans?
Not too long ago 2-year fixed rate loans were some of the lowest interest rates on the market. For a period in 2021 they were sometimes even lower than the most competitive variable rate loans.
But that's not the case now. Interest rates on all mortgages have risen because of rising inflation and the Reserve Bank's (RBA) decision to lift rates in response.
Variable rates have jumped up, and lenders have set their fixed interest rates even higher. This is the normal situation for fixed rates.
Is it too late to lock in a low 2-year fixed rate?
You should consider fixing your rate if you want to forget about rate rises and enjoy knowing exactly how much you should budget on mortgage repayments each month.
But if you're trying to lock in the lowest rate on the market, that ship has sailed. If you want the lowest possible rate, you might be better off with a variable rate (even if rates are going to rise further).
You can see the current difference between fixed and variable rates on our average interest rates guide.
How do I compare 2-year fixed rate home loans?
To make sure you get a great deal on a 2-year fixed rate loan, pay attention to the rate, the fees and the loans' features.
Focus on the following:
Look for a lower rate
If you decide you want a 2-year fixed rate, compare your options to find a lower one. Why pay more interest for no reason?
Look for a loan with low fees
When some loans come with multiple fees and others almost none, a low-fee loan is a no-brainer.
A lower interest rate is more important, but low fees are another way to save on your loan costs.
Fixed rate loans have fewer features than variable rate loans, like 100% offset accounts or the ability to make extra repayments. But some do, so it's worth comparing.
But even if a 2-year fixed rate lacks these features, you'll be on a variable rate in 24 months. Then the loan will give you more features and repayment options.
What kind of 2-year fixed rate home loans are available?
Owner-occupiers and investors both have plenty of options if they want to lock in a fixed rate.
Examples of specific fixed rate home loan types include:
- Fixed rate package home loans
- Fixed rate interest-only investor loans
- Low deposit fixed rate home loans
- Bad credit fixed rate home loans
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