Most Australians go for variable rate home loans. Borrowers who do fix, typically do so for 1-3 years.
Fixing your rate for 4 years means your interest rate will be higher (and thus more expensive). And if you want to refinance the loan or end it during the 4-year fixed period, you'll pay a hefty fixed rate break cost.
But there are some reasons people choose these loans:
There are a couple of downsides to fixing for a long time that put off many borrowers:
A 4-year fixed rate home loan is like any other home loan – you borrow money and repay it over the loan term. But for the first 4 years of the loan, your repayments will stay the same every month.
After the fixed period, 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.
When your fixed rate ends, it's a good time to compare home loans and see if you can get a better deal on a new variable rate loan. You could also get a new fixed rate loan instead.
Most lenders offer fixed rates between 1 and 5 years. Learn more about different fixed periods with these guides:
On average, 4-year fixed rates are much higher than variable rates. However, for a brief period in 2021, several lenders offered incredibly low rates for 4-year fixed rate loans. These products had rates under 2.00%.
If you'd fixed for 4 years at that point, you'd have one of the lowest rates on record until 2025. That's incredible, considering that variable rates are now around 3.50% at the lowest and 4-year fixed rates are often at 5.00%.
This was a rare event and required a very unique set of circumstances (including a very low rate lending environment). Now, once again, variable loans are the lowest interest rates on the market.
If you want a really low fixed rate, a 1- or 2-year rate will probably be lower than a 4-year rate now.
You can see the current difference between fixed and variable rates on our average interest rates guide.
To make sure you get a great deal on a 4-year fixed rate loan, pay attention to the rate, the fees and the loan's features.
Focus on the following:
Even if fixed rates are higher than variable rates, it's important to compare multiple 4-year fixed rates to find a good deal. Why pay more interest for no reason?
Some home loans have lots of fees and others have none. A lower interest rate is more important, but the fewer the fees, the cheaper the loan will be.
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.
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