Best Fixed Home Loans From 5.34%

What is a fixed rate home loan?

'Fixing' your home loan means locking in the interest rate, and therefore mortgage repayments, for a set period of time. This is distinct from variable-rate home loans, where the interest rate can change at any time (normally in line with movements to the RBA cash rate). Fixed terms in Australia are generally between one and five years, although some lenders - most notably ANZ - offer up to ten years.

Fixed-rate home loans vs variable

The advertised rates on both fixed- and variable-rate home loans tend to fluctuate based on what the RBA cash rate is or is expected to be in the future. Fixed rates generally price-in expected future moves in the cash rate. For instance, if the RBA is expected to lower the cash rate in the near future, fixed rates may be lower than variable rates to attract customers. On the other hand, if the RBA is expected to lift rates soon, fixed rates are likely to be higher than variable rates.

Why should you fix your home loan rate?

The major advantage of fixing your home loan is guaranteeing what your repayments will be. Knowing that your repayments won't change over the fixed term can make it easier to budget further into the future. It also means you'll be temporarily protected from any interest rate rises.

Why shouldn't you fix your home loan?

The downside to fixed rates is that if interest rates fall, you will miss out on the rate cuts that variable-rate mortgage holders benefit from - unless your fixed-rate was already substantially lower than most variable-rates to account for this.

Meanwhile, variable-rate home loans are typically more flexible than fixed-rate mortgages given they're more likely to allow extra repayments and access to features such as offset accounts and redraw facilities. It's also often cheaper/easier to refinance a variable-rate home loan than a fixed-rate home loan, since fixed-rates tend to come with break costs for exiting the fixed-term contract early. So if you think you might sell your home or refinance the house in the near future, perhaps a fixed-rate isn't for you.

Split home loans

If you can't decide between a fixed or variable rate, you might be able to compromise by only fixing a portion of the loan. Split home loans allow borrowers to hedge their bets, fixing repayments on some of the home loan while rolling the dice on the remainder. Let's say you fix 50% of your outstanding loan for three years. That means the interest rate you'll pay on half your outstanding balance will not change, while rates on the other half will likely fluctuate. If the cash rate goes up, you will see your repayments increase by less than they would have on a 100% variable-rate - although, if rates go down, your repayments wouldn't decrease as much.

Fixed rate home loans in Australia

Australians have traditionally opted for variable rates over fixed, perhaps due to the limited options to fix for longer than five years. However, the past few years suggests Aussies gravitate towards fixed rates when it looks like variable rates will start to increase, or can't go much lower (as we saw amid the pandemic). According to the ABS, the percentage of new home loans with fixed rates rose above 46% in September 2021, when the RBA cash rate remained at the all time low of 0.10%. After 425 basis points' worth of increases to the cash rate, the share of new home loans at fixed-rates plummeted, and has remained below 5% since September 2023.

Compare fixed rate home loans

There are a few aspects to consider when comparing fixed rate home loans with one another.

Fixed home loan rates

The interest rate you will pay is probably your biggest priority when choosing any loan. You should pay attention to the comparison rate as well as the interest rate, as this takes into account extra costs and fees. For fixed rates in particular, you should try to find out what the revert rate will be. This is the rate your loan will go back to once the fixed term expires.

Fees and break costs

It's important to take the extra fees and charges on fixed-rate loans into consideration. Of particular note is the break costs, which you'll need to pay if you exit the loan during the fixed-term. Break costs can be tens of thousands of dollars, so you'll want to avoid having to pay these.

Features

Although features like offset accounts are usually reserved for variable-rate loans, there may still be extra perks and benefits on fixed products. For example, some lenders offer a 'rate lock' on fixed products, which means your rate will not change between when you are approved for a loan and when the funds are actually transferred, even if the rate on new fixed-rate loans changes in that time. Also, some lenders do allow extra repayments up to a certain limit on fixed rate loans. You might even find one or two lenders that offer offset accounts on fixed-rate loans!

Fixed rate terms

Fixed rates in Australia are generally between one and five years, with terms longer than this generally pretty rare.

This is very different to other countries like the USA, where 30 year fixed-rate mortgages are common. The US has a much more developed securitisation market than Australia, with government-sponsored entities that buy fixed-rate mortgages and package them together to resell as mortgage backed securities. This means lenders can transfer the risk that comes from longer-term rates to institutions like 'Fannie Mae' and 'Freddie Mac'.

When comparing fixed rates, it's important to consider the length of the fixed term. Longer-term fixed rates are usually higher than those on shorter terms, given lenders price in the extra uncertainty of looking further into the future. The gap between shorter and longer term rates can vary depending on the economic outlook. For example, RBA data suggested that in February 2024, the average fixed rate on new loans for terms less than three years was 6.1% p.a, while terms over three years were 7.1%. By August 2024, after a shift to expecting rate cuts earlier, the shorter terms remained at 6.1% p.a. while longer terms had dropped to 6.5% p.a.