The Fixed Rate Home Loan

A fixed-rate home loan provides stability and predictability by locking in an interest rate for a set period, typically between one and five years. During this time, your repayment amounts remain unchanged, regardless of market fluctuations. Once the fixed term ends, you can choose to refix your loan at the prevailing rates or switch to a variable interest rate.

The Impact of Interest Rates

The Fixed, Variable, and Split options are often determined by the current cash rate (translating to the retail interest rates made available via lenders). The graph below shows recent trends. Our FAQ module provides more detailed information on Interest Rates and Inflation.

The current cash rate is 4.10.

Pros of the Fixed Rate Home Loan

Protection Against Interest Rate Rises

• When interest rates increase, borrowers on a fixed-rate loan are shielded from these hikes. This can be particularly beneficial in times of economic uncertainty when rates are expected to rise.
• Example: If your loan is fixed at 5% for three years and market rates rise to 6.5%, your repayments remain based on the 5% rate, saving you money over the fixed term.

Consistent Repayments for Easier Budgeting

• Knowing exactly how much you need to repay each month allows you to plan your finances with confidence. This can be particularly helpful for families, first-home buyers, or investors managing multiple financial obligations.
• Example: A young couple budgeting for a baby can benefit from a fixed-rate loan, as they can accurately forecast their expenses during parental leave.

Psychological and Financial Peace of Mind

• Financial predictability reduces stress. Borrowers don’t have to worry about potential rate hikes affecting their lifestyle or affordability.

Potential to Refix After the Term Ends

• Once your fixed period expires, you can reassess your financial position and decide whether to fix again or opt for a variable rate.

Cons of the Fixed Rate Home Loan

No Benefit from Rate Drops

• If interest rates fall, borrowers on a fixed-rate loan do not benefit from lower repayments. Example: If your loan is fixed at 6% and rates drop to 4.5%, variable rate borrowers will enjoy lower repayments, while you remain locked at 6%.

Potentially Higher Costs Over Time

• If interest rates stay low for an extended period, you may end up paying more than variable-rate borrowers.

Limited Extra Repayments

• Many fixed-rate home loans impose caps on additional repayments or charge break fees for early payments beyond a certain threshold. This can restrict your ability to pay off the loan faster. Example: If you receive a work bonus or an inheritance, you may not be able to apply the full amount to your mortgage without incurring penalties.

Break Costs and Penalties

• Exiting a fixed-rate loan before the term ends can be costly. Lenders may charge significant break fees, particularly if market interest rates have dropped since you locked in your rate. Example: If you secure a fixed-rate loan at 5.5% and need to refinance or sell your home two years into a five-year term, your lender may impose break fees amounting to thousands of dollars.

We’ll walk you though the process and ensure you are structured for maximum wealth creation and lowest repayments.