Fixed rate home loans

Finding the best fixed rate home loan for you

Every month, our home loan experts analyse over 100 home loan rates from our database to find our best home loan picks. We only select home loans that are suitable for a typical borrower, so we don't include loans that require enormous deposits or have extra eligibility requirements.

We then rank these loans, with the winning loans having a combination of low interest rates and low fees.

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What is a fixed rate home loan?

When you take out a home loan to buy a home or investment property, you can choose between 2 interest rate types: fixed and variable.

With a fixed rate you will lock in an interest rate for a set period, which is usually between 1 and 5 years, though it can be up to 10 years. The interest rate will not change, meaning your repayments will stay the same throughout the fixed period.

You may also have to wait to refinance to take advantage of a lower rate.

Should I fix my home loan rate?

The decision to fix your rate depends on your goals as a borrower and what you want from the loan. Fixing is not simply a way of betting that rates are rising and locking in a good deal now. Trying to time the market is always hard, and lenders are better at it than you.

Fixing is really about wanting certainty, and being comfortable locking in a good deal now. Even if variable rates may rise or fall.

A fixed home loan can give you peace of mind because, no matter what happens to official rates, your repayments won't budge. When rates are going up and times are tight, this can be priceless.

Nicole Pedersen-McKinnon
Freelance finance journalist

What's the difference between fixed rates and variable rates?

• A fixed rate won't change (until the fixed period ends).
• A variable rate can change at any time (these loans rose 8 times in 2022 and 5 times in 2023).
• There are no fees for exiting a variable rate loan early (by refinancing, selling or paying off the loan early). Exiting a loan during the fixed period incurs a break cost.

If you decide to fix your interest rate, keep in mind that it is very difficult to "beat the bank" (that is, lock in a rate that is lower than the variable rate for the duration of the fixed term, thereby paying the bank less for your loan over the full fixed term period).

Fixed versus variable rates: What are the differences?

Pros and cons of a fixed rate home loan

How do I find the best fixed rate home loan?

Finding the best fixed rate home loan is really about working out what you need, and finding a suitable loan with a low rate. To help you lock in the best fixed rate deal, start by considering these 5 factors:

Property plans

If you're not sure how long you might be in the property, you should think twice about locking into a fixed rate home loan. If there is any chance you may wish to sell the property during the fixed rate period, you need to think about the expensive break costs associated with fixed rate loans.

Interest rates

For any home loan interest rate, a lower rate is obviously going to save you money. But that's not the only consideration. If there's a chance you may need to sell the property or you're not sure of your plan in the next few years, it might be worth looking at variable rates to see if a competitive rate is on offer.

Other fees

Another consideration is the fees your lender charges. Always pay attention to a loan's fees, especially annual or ongoing fees. These can quickly add up and cancel out all the benefits of the lower interest rate.

Fixed rate period

Fixed rate borrowers have to choose terms between 1 and 5 years. Most loans give you multiple options, with different rates for each. Shorter fixed periods are typically lower, so 1-year terms are more competitive than 5-year terms.

Loan repayments

If you want to make extra repayments into your loan to chip away at the loan principal as quickly as possible, then a fixed rate loan may not be the best option as extra repayments are often not allowed on these types of loans.

How long should I fix my rate for?

Most lenders offer fixed rate terms between 1 and 5 years. These loans all work the same, only the length of the fixed period is different. But if you start comparing different loans you may notice that shorter fixed terms have lower rates, while longer terms have higher rates.

1- and 2-year fixed rates

Shorter term fixed rates are usually the most competitive fixed rate loans. There's less risk for the lender because it won't be long before your loan reverts to a variable rate. Fixing for 1 or 2 years is also a good option for borrowers who think they may want to sell their property, refinance or pay off their loan in a few years.

The downside with shorter fixed terms is that you only get the fixed benefit for a short time.

3-year fixed rates

3 years is often a good balance between a reasonable length of time and a competitive rate. 3-year fixed rates tend to be quite competitive while giving you just a bit longer on a stable rate.

4- and 5-year fixed rates

Fixing for 4 or 5 years is quite a long time, and market rates can vary quite a lot in those years. These rates are often much higher than other fixed rates, and are less popular with borrowers. But if you think you've found a really good loan, don't anticipate needing to exit the loan early and really value knowing exactly how much you'll pay, a 4- or 5-year fixed rate loan is an option.

What to ask your bank before fixing your home loan

Can fixing be cheaper even after paying break costs?

Breaking a fixed rate loan to refinance to a lower rate can be expensive. But if your repayments get significantly lower after ending your fixed rate loan, you could still end up saving money in the long run.

This is more likely the case in an environment where interest rates have been falling, when you could find newer fixed rates at a lower rate than you're currently paying.

At the moment, with rising interest rates, the break costs may make it less cost effective.

Example: Say you have a 3-year fixed rate loan with 1 year left on the fixed period.

You fixed your rate at 6.00% and you have $400,000 remaining on your loan. The loan term is 30 years. Because fixed rates are lower now, your lender is offering a fixed rate of 5.20% for new borrowers. This is 80 basis points lower.

By using the lower rate you can get a rough estimate of your loan break costs. The difference in your original fixed rate versus the new offer can stand in for the more complicated difference in funding costs (for a more comprehensive guide on break fee costs see here). The difference is 80 basis points, or 0.80%.

The following is the basic break fee calculation:

• Loan amount ($400,000) x fixed period remaining (1 year) x rate difference % (0.80%) = $3,200

Assuming that your break cost is $3,200, as in our example above, consider the potential savings if you switched to a much lower rate from a different lender. Let's say you break your old loan then get a variable rate loan with a rate of 4.80%.

In this scenario, you would pay the break fee but your repayments would shrink.

	Old loan	New loan
Loan amount	$400,000	$400,000
Interest rate	6.00%	4.80%
Monthly repayment	$2,399	$2,099
Monthly saving	N/A	$300
Yearly saving	N/A	$3,600
Break cost	$3,200	N/A

With this lower rate you'd end up making up the cost of the break fee in 11 months.

But, with new loan interest rates now higher, your new scenario might look more like this:

	Old loan	New loan
Loan amount	$400,000	$400,000
Interest rate	6.50%	5.70%
Monthly repayment	$2,529	$2,322
Monthly saving	N/A	$207
Yearly saving	N/A	$2,484
Break cost	$3,200	N/A

In this situation it would take 16 months for you to make back the cost of the break fee.

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More fixed rate home loan questions

• What happens when my fixed rate home loan ends?

  When your home loan's fixed period ends, your loan will automatically switch to a variable loan with the same lender, and you'll pay the variable rate that the lender charges at the time.

  There's no possible way to know what the variable rate will be 1 to 5 years into the future, but when you sign up for the loan, your bank will tell you its current revert rate. This is the variable interest rate that your fixed loan would switch to after the fixed period if interest rates were to remain the same over that period.

  The variable rate you end up paying may be higher or lower.

  Importantly, once your fixed rate ends, you will be free to refinance your loan, at which point you can choose whether to refinance to a lower variable rate or sign up for another fixed rate period.

• What happens if I want to end my fixed rate home loan early?

  It may be possible to end your fixed rate loan contract early, however there could be a hefty price to pay.

  A fixed rate home loan is a legal contract between you and your lender, which guarantees that you'll repay a fixed amount of interest on a loan over a specified time period.

  If you decide to break that contract by switching loans or lenders or selling the property and closing the loan altogether, your existing lender will want to be compensated for any loss it incurs.

  Breaking a home loan during a fixed interest period can be expensive. It is calculated using a number of factors: Learn how break costs are calculated.

• Do fixed rate home loans let you make additional repayments?

  Some fixed rate home loans let borrowers make additional repayments. These extra payments can be made usually up to a limit set by your lender.

  In most cases, if you make additional repayments above the set limit or repay the fixed rate loan in full, you may incur additional break costs for early repayment. Check the outline of fees with your lender before you start to make additional repayments.

• Can I get a fixed rate loan with a low deposit?

  Yes. Plenty of lenders offer fixed rates on their low deposit home loans. You can get a fixed rate home loan with a loan-to-value ration of 90% or even 95%. This means you can get the loan with a 10% deposit or even a 5% deposit.

• What is a split rate home loan?

  Many lenders allow you to split your loan into fixed and variable portions, which essentially lets you hedge your bets.

  For instance, you could choose to lock in 70% of your loan to a fixed rate. The benefit of this is the lower interest rate and repayment certainty. You then attach the remaining 30% to a variable rate home loan. The benefit of this is that you can still access features like an offset account to pay less interest based on your savings. Also, if you ever have to end your loan for any reason, the break cost will be lower as only 70% of the loan's value is fixed.

  A split loan may be the best of both worlds. If you're still not quite sure which option is best for you, consider speaking to a mortgage broker for expert advice.