Should you choose a fixed rate home loan?

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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 August 24th, 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, P&I)
    Owner-occupiers can lock in a competitive rate with no ongoing fees. Conditions apply.
    3.74% 4.85% $0 $0 p.a. 95% Go to site More info
    NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I) First Home Buyer Special
    A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
    3.69% 4.86% $0 $395 p.a. 90% Go to site More info
    Select Encompass Credit Union Special Offer 2 Year Fixed Rate Home Loan
    A fixed rate loan with limited fees and a competitive interest rate.
    3.74% 4.15% $0 $0 p.a. 95% Go to site More info
    ME Flexible Home Loan Fixed - 2 Year Fixed Rate (Owner Occupier, P&I)
    Get a competitive 2-year fixed rate with no application or ongoing fees.
    3.74% 4.81% $0 $0 p.a. 95% Go to site More info
    Tic:Toc Live in Loan Fixed Rate - 2 Years (Owner Occupier)
    Tic:Toc's fixed rate owner occupier loan has a competitive rate, limited fees and a fast, easy online application process.
    4.19% 3.78% $0 $0 p.a. 80% Go to site More info
    Aussie Select Basic Fixed Rate Home Loan - 2 Year Fixed LVR up to 80% (Owner Occupier)
    Fix a low rate home loan for 2 years with Aussie Home Loans.
    3.99% 3.84% $0 $0 p.a. 80% Enquire now More info
    Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Standard Rate, P&I)
    Enjoy a low interest rate and borrow up to 95% (with LMI) of your property's value.
    3.94% 4.88% $0 $0 p.a. 95% Go to site More info
    NAB Tailored Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier P&I)
    A fixed rate home loan with additional repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
    3.98% 5.13% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    Citibank Fixed Rate Loan - 2 Year Fixed Rate (Owner Occupier, P&I)
    Enjoy a low rate on a 2-year fixed home loan.
    4.09% 5.51% $399 $8 monthly ($96 p.a.) 90% Enquire now More info
    ANZ Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier, P&I)
    Flexible repayment options to help you save.
    4.03% 5.08% $600 $10 monthly ($120 p.a.) 95% Enquire now More info
    Rates last updated August 24th, 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
    Tic:Toc Live in Fixed Rate Home Loan - 1 Year (Owner Occupier)
    Apply online for this fixed rate, low-fee loan with redraw facilities and an optional offset account.
    3.94% 3.71% $0 $0 p.a. 80% Go to site More info
    UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier)
    Refinance with UBanks low 1 year fixed rate offer. No application fee.
    3.69% 4.15% $395 $0 p.a. 80% Go to site More info
    Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Standard Rate, P&I)
    Investors can take advantage of a short term fixed rate with no application or ongoing fees.
    3.94% 4.98% $0 $0 p.a. 95% Go to site More info
    NAB Tailored Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier P&I)
    Enjoy a low rate fixed home loan with the ability to borrow up to 95% of the property value. 350K NAB Rewards Points offer available. Terms and conditions apply.
    3.99% 5.25% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    Commonwealth Bank Fixed Rate Home - 1 Year Fixed Rate (Owner Occupier, P&I)
    A 1 year fixed rate home loan from Commonwealth Bank.
    4.14% 5.26% $600 $8 monthly ($96 p.a.) 95% Enquire now More info
    Citibank Fixed Rate Loan - 1 Year Fixed Rate (Owner Occupier, P&I)
    Get a competitive 1-year fixed rate from an international bank.
    4.09% 5.65% $399 $8 monthly ($96 p.a.) 90% Enquire now More info
    St.George Fixed Rate Home Loan - 1 Year Fixed Rate (Owner Occupier, P&I)
    Enjoy a 1-year fixed rate with flexible features such as redraw, rate lock, a partial interest offset facility, repayment pause and more.
    4.14% 5.28% $600 $10 monthly ($120 p.a.) 95% Enquire now More info
    Westpac Fixed Options Home Loan Premier Advantage Package - 1 Year, P&I
    Secure a competitive 1-year fixed rate with low ongoing fees.
    3.99% 4.96% $0 $395 p.a. 95% Enquire now More info
    ANZ Breakfree Package Home Loan - 1 Year Fixed (Owner Occupier, P&I)
    A competitive package home loan with 100% offset account.
    3.99% 5.07% $0 $395 p.a. 95% Enquire now More info
    Westpac Fixed Rate Investment Property Loan - 1 Year Fixed Rate, P&I
    A competitive fixed rate home loan with extra repayments available.
    4.39% 5.79% $600 $8 monthly ($96 p.a.) 95% Enquire now More info
    Rates last updated August 24th, 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 - 5 Year Fixed (Owner Occupier Special Rate, P&I)
    Owner-occupiers can enjoy peace of mind with a low 5-year fixed rate.
    4.24% 4.75% $0 $0 p.a. 95% Go to site More info
    Tic:Toc Live in Loan Fixed Rate - 5 Years (Owner Occupier)
    Get quick online approval for Tic:Toc's fixed rate owner occupier home loan. Low fees, flexible repayments.
    4.54% 4.04% $0 $0 p.a. 80% Go to site More info
    NAB Choice Package Home Loan - 5 Year Fixed (Owner Occupier P&I)
    A competitive loan with flexible features. 350K NAB Rewards Points offer available. Terms and conditions apply.
    4.59% 5.01% $0 $395 p.a. 95% Go to site More info
    ANZ Breakfree Package Home Loan - 5 Year Fixed (Owner Occupier, P&I)
    A discounted rate and fee waivers are available with this loan.
    4.49% 5.03% $0 $395 p.a. 95% Enquire now More info
    4.69% 5.14% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    ANZ Fixed Rate Home Loan - 5 Year Fixed (Owner Occupier, P&I)
    Borrow up to 80% of your home loan value.
    4.64% 5.07% $600 $10 monthly ($120 p.a.) 95% Enquire now More info
    4.54% 5.08% $600 $8 monthly ($96 p.a.) 95% Enquire now More info
    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
    4.44% 5.06% $600 $10 monthly ($120 p.a.) 95% Enquire now More info
    Citibank Fixed Rate Loan - 5 Year Fixed Rate (Owner Occupier, P&I)
    Borrow up to $4 million on a competitive 5-year fixed rate
    4.59% 5.35% $399 $8 monthly ($96 p.a.) 90% Enquire now More info
    BankVic Premium Package Fixed Home Loan - 5 Years (Owner Occupier)
    Package your 5-year fixed rate home loan and save.
    4.44% 4.51% $0 $375 p.a. 95% More info
    Rates last updated August 24th, 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, P&I)
    A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
    3.79% 4.75% $0 $0 p.a. 95% Go to site More info
    3.79% 4.07% $500 $0 p.a. 95% Go to site More info
    Community First Fixed Home Loan - 3 Years Fixed Owner Occupier special offer (New Loans only)
    A limited time fixed rate special with no monthly or annual fees plus a 100% offset account.
    3.89% 4.97% $600 $0 p.a. 95% Go to site More info
    Tic:Toc Live in Loan Fixed Rate - 3 Years (Owner Occupier)
    A fixed rate loan with free redraws, few ongoing fees. Apply online with a fast approval process.
    4.32% 3.85% $0 $0 p.a. 80% Go to site More info
    NAB Choice Package Home Loan - 3 Year Fixed (Owner Occupier P&I)
    Receive discounts on interest rates with the Choice Package. 350K NAB Rewards Points offer available. Terms and conditions apply.
    3.94% 4.84% $0 $395 p.a. 95% Go to site More info
    ME Flexible Home Loan Fixed - 3 Year Fixed Rate (Owner Occupier, P&I)
    A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
    3.99% 4.77% $0 $0 p.a. 95% Go to site More info
    Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Years Fixed (Standard Rate, P&I)
    A low 3-year fixed rate with the option to split your loan for free.
    3.99% 4.80% $0 $0 p.a. 95% Go to site More info
    UBank UHomeLoan - 3 Year Fixed Rate (Owner Occupier)
    A competitive refinance offer on a 3 year fixed rate.
    3.99% 4.08% $395 $0 p.a. 80% Go to site More info
    NAB Tailored Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier P&I)
    Flexible fixed rate home loan which will allow you to take break from repayments if you're ahead of scheduled repayments.
    4.04% 5.05% $600 $8 monthly ($96 p.a.) 95% Go to site More info
    Homeloans Ultra - 3 Year Fixed Rate
    A 3 year fixed rate offer from Homeloans.
    4.94% 5.00% $0 $0 p.a. 95% Enquire now 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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