Should you choose a fixed rate home loan?

Rates and Fees verified correct on March 25th, 2017

We answer one of the most difficult home loan questions around: should fix your home loan?

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Even if the majority of home loans in Australia are of the variable flavour, there are many reasons why fixed rate loans are beneficial to borrowers.

Variable rate loans have interest rates which fluctuate over the course of a loan term. Each month the Reserve Bank of Australia meets to determine what the new cash rate target will be. This can push mortgage rates up or down.

Fixed rate loans differ in that you take out an agreed fixed rate for a number of years, usually 1 - 5. During this time your rate stays the same regardless of what the RBA decides, and therefore your repayments also don’t fluctuate.

Locking in a rate for a number of years isn’t a decision to take lightly. There’s always the risk that you’ll be stuck with a rate much higher than those offered on variable rate loans if the RBA decides to cut the official cash rate after you fix. There’s also the flip side: you might enjoy a loan with a rate much lower than the variable rate loans available if the RBA cuts rates.

  • How can I compare fixed rate home loans?
  • The split rate solution
  • Comparison of fixed rate home loans

    Rates last updated March 25th, 2017
    $
    Loan purpose
    Offset account
    Loan type
    Your filter criteria do not match any product
    Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
    Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier Special Rate)
    A limited time 2 year fixed rate for owner occupiers. Conditions apply.
    3.89% 4.79% $0 $0 p.a. 95% Go to site More info
    NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
    A fixed rate package loan with flexible repayments options.
    3.98% 4.97% $0 $395 p.a. 95% Go to site More info
    Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Owner Occupier)
    Enjoy a low interest rate and borrow up to 95% (with LMI) of your home value.
    4.49% 4.90% $0 $0 p.a. 95% Go to site More info
    Bank Australia Premium Home Loan Package - 2 Year Fixed (Owner Occupier) LVR < 80%
    A discounted 2 year fixed rate loan with high maximum LVR and no application fee.
    3.69% 4.31% $595 $350 p.a. 80% Go to site More info
    CUA Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
    A fixed home loan with no ongoing fees and flexible repayments options.
    3.84% 4.59% $600 $0 p.a. 95% Go to site More info
    CUA Premium Fixed Rate Home Loan - 2 Year Fixed Rate (Owner Occupier)
    Enjoy a 2 years fixed rate with $0 ongoing fees, free multi-account offset, flexible repayment options and easy access to your cash with a redraw facility.
    4.06% 4.63% $600 $0 p.a. 95% Go to site More info
    NAB Tailored Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
    A fixed rate home loan with the ability to lock the interest rate at the time of loan approval for up to 3 months.
    4.08% 5.22% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    Citibank Fixed Rate Loan - 2 Year Fixed Rate (Owner Occupier)
    One of Citibank's best fixed rate on offer.
    4.19% 4.74% $399 $8 monthly ($96 p.a.) 90% Enquire now
    ANZ Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
    Flexible repayment options to help you save.
    4.13% 5.10% $600 $10 monthly ($120 p.a.) 95% Enquire now
    Citibank Mortgage Plus Fixed Rate - 2 Year Fixed Rate (Owner Occupier)
    Borrow up to $90 with Citibank Mortgage Plus 2 Year Fixed Rate.
    3.99% 4.54% $0 $350 p.a. 90% Enquire now
    Rates last updated March 25th, 2017
    $
    Loan purpose
    Offset account
    Loan type
    Your filter criteria do not match any product
    Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
    Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
    Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
    3.59% 4.42% $0 $375 p.a. 85% Go to site More info
    NAB Choice Package Home Loan - 1 Year Fixed (Owner Occupier)
    A low interest rate home loan with flexible repayment options. 250,000 Velocity Frequent Flyer point offer, conditions apply.
    3.89% 5.03% $0 $395 p.a. 95% Go to site More info
    Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier)
    Get a short term fixed rate for that investment property with no application or ongoing fees.
    4.49% 4.95% $0 $0 p.a. 95% Go to site More info
    IMB Fixed Rate Home Loan - 1 Year Fixed (LVR < 90% Owner Occupier)
    Lock in a rate for one year and get the ability to make additional repayments for 12 months without penalty.
    4.29% 4.84% $445 $6 monthly ($72 p.a.) 90% Go to site More info
    NAB Tailored Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier)
    Enjoy a low rate fixed home loan with the ability to borrow up to 95% of the property value.
    3.99% 5.32% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    Commonwealth Bank Fixed Rate Home - 1 Year Fixed Rate (Owner Occupier)
    A 1 year fixed rate home loan from Commonwealth Bank.
    4.54% 5.30% $600 $8 monthly ($96 p.a.) 90% Enquire now
    3.79% 4.12% $0 $330 p.a. 80% Enquire now
    Rates last updated March 25th, 2017
    $
    Loan purpose
    Offset account
    Loan type
    Your filter criteria do not match any product
    Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
    Greater Bank Ultimate Home Loan - Discounted 5 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
    Keep your loan below 85% LVR with a loan amount above $150k and this discounted 5 year fixed rate. NSW, QLD and ACT residents only.
    4.19% 4.50% $0 $375 p.a. 85% Go to site More info
    IMB Fixed Rate Home Loan - 5 Year Fixed (LVR < 90% Owner Occupier)
    Borrow up to 90% of your home’s value and lock in your rate for 5 years.
    4.39% 4.73% $445 $6 monthly ($72 p.a.) 90% Go to site More info
    NAB Choice Package Home Loan - 5 Year Fixed (Owner Occupier)
    A competitive loan with flexible features.
    4.59% 5.05% $0 $395 p.a. 95% Go to site More info
    Greater Bank Great Rate Home Loan - Discounted 5 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
    A low fee fixed rate home loan with a redraw facility. NSW, QLD and ACT residents only.
    4.39% 4.33% $0 $0 p.a. 85% Go to site More info
    NAB Tailored Fixed Rate Home Loan - 5 Year Fixed (Owner Occupier)
    Enjoy an interest only payment option for up to 5 years.
    4.69% 5.19% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    ANZ Fixed Rate Home Loan - 5 Year Fixed (Owner Occupier)
    Borrow up to 80% of your home loan value.
    4.74% 5.12% $600 $10 monthly ($120 p.a.) 95% Enquire now
    Commonwealth Bank Fixed Rate Home - 5 Year Fixed Rate (Owner Occupier)
    A fixed home loan rate from Commonwealth Bank.
    4.74% 5.16% $600 $8 monthly ($96 p.a.) 90% Enquire now
    St.George Fixed Rate Home Loan - 5 Year Fixed Rate (Owner Occupier, P&I)
    Enjoy a 5 years fixed rate with great features such as rate lock, a partial interest offset facility, repayment pause and more!
    4.54% 5.15% $600 $10 monthly ($120 p.a.) 95% Enquire now
    eMoney PRIME Full Doc Fixed Home Loan - 5 Years
    Plan your budget with eMoney PRIME Full Doc Fixed Home Loan - 5 Years.
    4.37% 4.54% $0 $0 p.a. 95% Enquire now
    Citibank Fixed Rate Loan - 5 Year Fixed Rate (Owner Occupier)
    A competitive fixed interest rate, borrow from a mininum of $50K to $4M.
    4.69% 4.89% $399 $8 monthly ($96 p.a.) 90% Enquire now
    Rates last updated March 25th, 2017
    $
    Loan purpose
    Offset account
    Loan type
    Your filter criteria do not match any product
    Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
    Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate)
    A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
    3.99% 4.73% $0 $0 p.a. 95% Go to site More info
    SCU My Life Fixed Rate Home Loan Package - 3 Years
    Enjoy the same interest rate for 3 years fixed and borrow up to 95% LVR. Enjoy $500 cash back on new loans above $150k, terms and conditions apply.
    3.69% 4.00% $0 $350 p.a. 95% Go to site More info
    NAB Choice Package Home Loan - 3 Year Fixed (Owner Occupier)
    Receive discounts on interest rates with the Choice Package.
    4.09% 4.94% $0 $395 p.a. 95% Go to site More info
    ME Flexible Home Loan Fixed - 3 Year Fixed Rate (Owner Occupier)
    A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
    4.09% 4.80% $0 $0 p.a. 95% Go to site More info
    IMB Platinum Package Fixed Home Loan - 3 Year Fixed (LVR < 90% Owner Occupier)
    3 years fixed platinum package with a low interest rate and $0 application fee.
    3.85% 4.72% $0 $395 p.a. 90% Go to site More info
    Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Years Fixed (Owner Occupier)
    Split your loan for free with one of the lowest fixed home loan rates.
    4.59% 4.89% $0 $0 p.a. 95% Go to site More info
    Greater Bank Ultimate Home Loan - Discounted 3 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
    Enjoy discounts on insurance products and other accounts with Greater with this package loan. NSW, QLD and ACT residents only.
    3.84% 4.40% $0 $375 p.a. 85% Go to site More info
    IMB Fixed Rate Home Loan - 3 Year Fixed (LVR < 90% Owner Occupier)
    3 years fixed interest terms and free access to redraw facility online.
    3.95% 4.67% $445 $6 monthly ($72 p.a.) 90% Go to site More info

    How do fix rate loans differ from variable rate loans?

    As mentioned, fixed rate mortgages differ from variable rate loans in three main ways: rates, fees and features.

    • Rates - A fixed rate won’t change over the course of the agreed term. This means if you lock in a rate for three years your repayments will not change. This is useful if you’re sticking to a tight budget, or if you’re an investor looking to guarantee your cash flow won’t decrease over the next few years.
    • Fees - Fees can differ depending on your lender and the loan type, but one fee that is specific to fixed rate loans is the break cost. Break costs are charged when you exit a fixed length before the term is up. Because your bank itself borrows money from various funding sources when providing you with your loan, break costs are calculated using the rate your lender paid for your funds compared to the rate you locked in. They also take into account how long your fixed term still had until completion, and the loan size.
    • Features - As is the case with fixed rate fees, the features they offer depends on the lender and the type of loan you obtain. The most common feature a fixed rate loan doesn’t have is the ability to make additional repayments. Most fixed rate loans will either not allow extra repayments, or limit this to a set amount each year - usually between $10,000 - $20,000. Many fixed rate home loans also don’t come with the option to use 100% offset accounts.

    How do I know if it’s a good time to fix?

    If you listen to advertisements from banks and other lenders, it’s always a good time to fix. Advertisements for fixed mortgages play on two fears - the fear of rates rising to a point where you can’t afford repayments anymore, or the fear that you’ll miss out on savings if you don’t lock in a great fixed rate before rates rise.

    Here are a few ways of finding out if you should fix:

    • Check our RBA page. Our monthly survey collates data from the top economists and commentators in the country. They’ll regularly drop hints about where they think interest rates will be in the medium to long term. You can use this to find out what they think will happen to the cash rate, and therefore whether you should fix in a good rate or wait for further rate cuts before fixing.
    • Do you plan on making additional repayments towards your loan? As mentioned, fixed rate home loans generally don’t allow you to put extra repayments on your home loan, which can reduce your loan term and the interest payable. If you think you’ll want to put extra money towards your loan during the fixed term, it may be better to seek a variable rate home loan or choose a fixed rate home loan which allows additional repayments.
    • Are you happy keeping your property for the length of the fixed term? A lot can happen in the space of a year, let alone five. Keep in mind that if you exit a fixed home loan, you can be liable for break costs which can cost thousands. If you’re thinking of selling your property in the short term, a fixed rate home loan might not be the best choice for you, as you might be required to pay these break costs.

    How long should I fix for?

    Title

    This is linked to the question above. The length of time you fix for should take into account your lifestyle choices, such as whether you intend to sell your property over the course of the next few years, and whether or not you intend to put more of your income towards making loan repayments.

    Economic information should also have a bearing on how long you fix for. If many leading economists believe rates will rise within the year, there’s a good possibility that this could happen. In reality, forecasting rates is difficult and depends on a range of complex factors, meaning it’s never completely reliable.

    You might also want to obtain the advice of an experienced accountant, mortgage broker or financial planner, as they can help you work this out in conjunction with examining interest rate trends and other economic data.

    How can I compare fixed rate home loans?

    If you’ve decided fixed rate home loans are right for you, a comparison should take into account the following:

    RatesYou’ll want to compare both the advertised rate, and the comparison rate, which will take into account some of the fees you’ll have to pay with these loans into the rate. Rates will have a direct influence on the size of your repayments.
    FeesHome loans can come with a range of fees including application fees, legal fees, settlement fees, annual or monthly fees and valuation fees. Compare these when viewing different home loans.
    FeaturesFixed rate home loans generally have less features than variable home loans. It’s still a good idea to find out if you want a 100% offset account or the ability to make additional repayments, as well as a redraw facility, before you start comparing home loans.

    Compare fixed rate home loans

    The split rate solution

    If you’re new to fixed home loans, one way to try them out first is with a split rate. This feature basically allows you to split your home loan into two or more portions and then choose a combination of fixed and variable rates for these portions.

    This could mean you have a small portion of your loan using a fixed rate, and then have the remainder calculated using a variable rate.

    Keep in mind that some lenders may have minimum amounts you can split your loan into, and might also limit the number of times you can split your home loan. They might also charge fees for splitting your home loan.

    As mentioned above, it’s a good idea to speak to a broker, accountant or financial planner before taking out a split rate home loan.


    Fixed home loans can offer a range of benefits for all types of borrowers. Just be sure to seek adequate advice before signing on the dotted line.

    Compare mortgage brokers today

    Marc Terrano

    A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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