Fixed Rate Home Loans in Australia
Getting a fixed rate on your home loan is an excellent way to safeguard your future finances by keeping your interest rate stable. However, it can be tough to determine which home loan option is the right fit for your homeowner needs. This article teaches you how to make an informed fixed rate home loan comparison in order to get the best deal.
Fixed Rate Home Loans at Your Fingertips
Contents
What is a fixed rate home loan?
This type of home loan is built on a locked-in interest rate that will stay the same for a set period of time, typically between 1 and 5 years. After that period ends, you will have the option to re-fix the rate at a different level, or to convert your loan into a variable rate loan. If you do not select a specific option, loans will often automatically revert to a higher variable rate which is tied to the RBA cash rate.
Many homeowners would love to get the best fixed interest rates in Australia and hold onto them for as long as possible. Unfortunately, there’s a catch: the longer your fixed rate loan term is, the higher the interest rate will be. This is because you are paying a premium for the security of having a set rate for a long time.
What are the different types of home loan rates?
Savvy loan shoppers will compare fixed home loan rates to other loan rate types to find out what makes the most financial sense long-term. These are three types of rates to be familiar with:
| Interest rate level | Extra repayments available | Home loan offset account available | Break fee for early termination | |
|---|---|---|---|---|
| Fixed | Set at one point | Seldom | Seldom | Yes |
| Variable | Moves with market | Frequently | Frequently | Yes |
| Split | Part fixed, part variable | Frequently | Frequently | Yes |
The main thing to note here is the split rate. This is a “have your cake and eat it too” option where a portion of the loan has a fixed rate, while the remaining portion has a variable rate. This is a lower-risk way to get some of the benefits of a variable rate while still keeping a large chunk of the payment at a stable, fixed rate.
Note also that this fixed rate home loan comparison reveals the different features that certain loan types may lack. In particular, a fixed rate loan agreement is quite unlikely to allow extra repayments or to be compatible with a home loan offset account. Variable loans will typically offer those two features.
How long should I fix my home loan rate for?
Home loan terms usually last from 20 to 30 years, but a fixed rate period will be much shorter than this. The most common option is to fix your home loan rate for somewhere around 1 to 5 years, with certain lenders offering as long as 10 year fixed rate home loans. Let’s compare fixed home loan rates of different lengths:
1-2 years
The shorter term option will traditionally be the lowest fixed rate home loan that you can get, but you’ll have to renew very soon.
3 years
This is seen as a good balance between loan duration and rate level, often making it the most popular fixed interest rate.
4-5 years
This option is the most stable, but locking into one rate means you risk losing out on better rates if market conditions shift.
Pros and cons of a fixed rate home loan
Getting a handle on the advantages and disadvantages of this loan type will be helpful when trying to find the best fixed rate home loans in Australia. These are some facts to keep in mind:
Pros
Cons
How do I find the best fixed rate home loans in Australia?
To conduct a detailed fixed rate home loan comparison, there are several aspects of the loan you have to pay close attention to. These include:
- Interest rates: Be sure to dig into not just the advertised rate, but also the comparison rate which incorporates the extra fees and charges. Also focus on the revert rate, which will become your new rate after the fixed period expires.
- Fees: Don’t let yourself get caught unaware by any establishment fees, annual fees, account upkeep fees, and particularly early termination fees.
- Fixed-rate period and overall loan term: Be aware of how long your rate will be fixed for, and how much time you’ll still have remaining on the loan after the rate runs out.
- Repayment schedule: Check whether you can adjust the repayment schedule to align with your income—either weekly, fortnightly, or monthly. Also ask about additional repayments to help you get ahead and keep interest costs down.
- Additional features: Find out whether the lender can help you utilise financial tools like a redraw facility or an offset account.
Fixed rate home loan comparison FAQ
Fixed rate home loan conclusion
The goal of this guide was to equip you for making a proper fixed rate home loan comparison while shopping for home finance options. Examining the strengths and weaknesses of different loan types is essential. To get the best fixed interest rates in Australia, you need to be a strategy-minded homebuyer thinking several years ahead on your home loan.