What you need to know
- Fixed rate home loans let you lock in an interest rate for a period of time. Your repayments do not change during the fixed period.
- When your rate is fixed you may be unable to make extra repayments and it can be costly to refinance.
- Every month Finder picks the top fixed rate home loans offered by our partners, determined by interest rates, fees, deposit size and other factors.
Finder's top fixed rate home loan picks for July 2023
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We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
How we picked our best fixed rate loans
Every month Finder's experts examine over 1,000 fixed rate loans in our database. We choose our top picks by analysing each loan's interest rate, fees, minimum deposit size and loan purpose.
We select our top picks from our commercial partners in 3 categories of borrower: First home buyers, refinancers and investors.
Keep in mind that our best home loan picks do not cover the entire home loan market. Based on your personal circumstances there may be better loans for you than the ones we've highlighted here. Always compare your options before you apply.
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.
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).
- 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).
Pros and cons of a fixed rate home loan
- In the current market, interest rates are rising fast. By fixing, you can avoid future rate rises (although you will have to opt for a higher rate when you do fix).
- Your repayments won't change during the fixed period. This can give you a sense of certainty around your repayments; you can budget and know your loan repayments are consistent until the fixed period ends.
- Higher rates. Fixed rates are higher than variable rates most of the time. But not always.
- Less flexibility. Often you can't make extra repayments or changes to the loan without paying fees and penalties. If you need to leave the loan early, you will need to pay a break fee.
- There's a chance variable interest rates could drop lower. Those with variable mortgages will then get lower repayments, while yours stay fixed. But this is never a certainty.
- Most lenders don't offer fixed home loans with 100% offset accounts. This means if you have any savings, you won't be able to offset them against the interest you pay on your mortgage.
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:
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.
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.
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.
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
Nancy Youssef is an award-winning finance broker and mentor.
Nancy Youssef, founder of Classic Home Loans, says there are questions to ask your bank or lender when fixing your home loan.
"There may be partial offset accounts available with some lenders for fixed rates, and although they are not 100%, they can be partially offsetting your savings. This is a niche with some lenders and not available with the majority," she says.
"There are also lenders who do allow additional repayments on fixed rates. And if you need to reduce payments for a period of time to interest only instead of principal and interest, some lenders will do it quite quickly as a variation to the contract, whereas others (especially in the current landscape) will need this submitted as a new credit application. If your situation is a little complicated or out of the ordinary, a conversation with your broker or bank is a good idea."
Can fixing be cheaper even after paying break costs?
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|
With this lower rate you'd end up making up the cost of the break fee in 11 months.
Why you can trust Finder's home loan experts
More fixed rate home loan questions
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30 year fixed rate home loans
Thirty year fixed rate home loans are a great way to lock in a great interest rate for the entirety of your loan but Australia doesn’t currently offer this lengthy loan option.
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If you are looking to invest or you want to reduce your repayments, you may want to compare fixed rate interest-only home loans.
Compare fixed rate home loans with 100% offset accounts
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Early repayment adjustment, also known as a break fee, is charged when you end a fixed loan contract. Learn how banks calculate these fees.
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