Compare fixed rate home loans

When repaying a mortgage, you will not only be paying off the loan amount (the principal), but you’ll also be charged interest on your home loan. This interest may be charged at a fixed rate or at a variable rate.

A fixed interest rate is locked in, and will not change for a set period. This is typically from 1 to 5 years, though some lenders may offer longer fixed terms, such as 7 to 10 years.

A variable rate is subject to change as influenced by the Reserve Bank of Australia’s (RBA’s) cash rate, the Australian economy, and other factors affecting the mortgage lender.

Homeowners can also choose both options, resulting in what’s known as a ‘split rate’ loan. This is where interest is charged on part of your loan at a fixed rate, and on the remainder at a variable rate. 

Fixed rate home loans are available for both owner-occupiers and investors. Whether you’re a first home buyer or a long-time investor, if you meet the lender’s eligibility criteria, you may be able to apply for a fixed rate home loan.

While a home loan term is generally around 20-30 years, your fixed rate period is usually much shorter. You’ll have the choice of fixing your home loan rate for between 1 and 5 years, with longer terms up to 10 years potentially available from some lenders. 

This is for your benefit and the lender's, as you wouldn’t want to lock yourself into a record-high rate and then miss out on lower rates in the future. On the other hand, lenders make money from the interest you pay, so it’s not in their best interest to let homeowners stay on record-low rates for 20+ years either.

With 10-year fixed rates being rare, you may want to start a search for a fixed rate loan looking at 3-year fixed rates, 4-year fixed rates, or the more standard maximum length, 5-year fixed rate loans. 

Once the fixed rate term ends, your home loan will generally switch to the lender's standard variable rate, also known as a ‘revert rate’. It’s worth being aware of your lender’s revert rate if your fixed rate term is coming to an end, as the revert rate is generally higher than the fixed rates most lenders offer.

You generally have two options if your fixed rate term is ending and you don’t want to switch to the lender’s revert rate:

• Request to re-fix your existing home loan. You’ll typically be put onto one of the lender’s current fixed rate options, but you do have the option to haggle to go on the same rate you are currently on.
• Refinance your home loan. If you’re not happy with the variable interest rate or new fixed rate offered by your lender, you may want to consider if refinancing to a new home loan lender may suit your situation better.

Making the decision whether to fix your home loan rate is a tough one and requires you to do some research into the economy, the home loan market, as well as what may best suit your finances.

There are a few things to keep in mind when making this decision:

• The Reserve Bank of Australia (RBA)

Often, the biggest question facing homeowners is whether they should fix now or wait to see if rates change further. This is where it’s important to remember that no one can predict where the market may move next with 100 per cent accuracy. What we do know is that the days of home loan interest rates in the teens have been gone for several decades.

Australia recently experienced the lowest home loan rate environment in its history. This was due to the state of the Australian economy, as well as the Reserve Bank of Australia (RBA) cutting the cash rate down to a record-low number, having not raised the cash rate in over 11 years.

However, from May 2022 the RBA began raising the cash rate to help tackle inflation. With the cash rate likely to lift higher in the future, you may want to consider fixing to try and prevent rate hikes from affecting your repayments. Remember that if your lender changes its fixed rates between your application and its approval, you could end up paying a higher rate on your home loan, unless you opt to pay a rate lock fee.

• The Australian economy

The RBA takes stock of what is happening on a domestic and international scale when making its decision around whether to change the cash rate. This means that you may want to do the same when deciding whether to fix.

Events such as the COVID-19 pandemic, share market crashes and general volatility may significantly affect the decision of the RBA, as well as your lender, around lifting interest rates. It may be worth doing your research in this area to make a more informed decision around if, and when, rates may lift again.

• The home loan that suits you best

Mortgage lenders frequently lift and cut interest rates out-of-cycle with the RBA. Trying to lock in the perfect moment to fix may be a fool’s errand. This means you may be better off weighing up the RBA’s movement and the economy against whether a fixed rate home loan suits your budget and finances more than a variable rate loan.

For example, imagine you opt for a variable rate home loan with an offset account. Your lender hikes your variable rate a few years into your repayments, but you may not feel the impact as much as you’ve been steadily depositing funds into your offset account. 

This is why choosing the right repayment option for your home loan is also about comparing any potential upfront or ongoing fees, and the features and flexibility offered by the loan. 

Homeowners who don’t want to pick between fixed and variable rates could choose both. This is also known as a ‘split loan', or split interest rate, where interest is charged at a fixed rate on part of your mortgage principal and at a variable rate on the remainder. It doesn’t have to be 50/50 fixed and variable, but may be 80% fixed, 20% variable, or whatever the borrower and lender agree on.

A split rate home loan may offer the ‘best of both worlds’ for some home loan customers. You may be able to enjoy the perks and risks of both fixed and variable rate home loans, including access to features like an offset account, and easier budgeting with consistent part-payments of the mortgage.

However, your fixed portion of the home loan will also be locked into a set period, which may then revert to a variable rate. This revert rate may be higher than your fixed rate and different to your existing variable rate, meaning you may be paying interest at two different variable rates.

It’s important to research and compare all your options when choosing your fixed rate mortgage lender. Thankfully, there are a range of comparison tools available that can help take the hassle out of this process, including:

• Comparison rates 

There is more to a home loan than its interest rate. It’s important to compare other costs, such as upfront or application fees, ongoing fees like annual package fees, and any break costs. Comparison rates consider not just the advertised rate, but most of these upfront and ongoing costs, based on a $150,000 home loan over a 25-year term.

While that loan amount may be considerably lower than the average person’s mortgage – especially in a capital city - it may come in handy in helping to provide a more accurate picture of the 'true' cost of the loan. If the comparison rate is significantly higher than the advertised rate, it may be safe to assume the lender charges significant fees compared to other loan options.

• Comparison tables

Comparison tables allow you to compare apples with apples. You can filter down and view a range of fixed rate home loans side by side as determined by your specific needs. You can use these tables to sort your results by factors important to your search, such as lowest rates or most features. This may help you to make an easy shortlist for your home loan comparison.

RateCity’s comparison tables also give you the option of comparing fixed rate loans against other lenders, including the big four banks. If you’ve only ever stuck with the bank of your childhood, this feature may help you determine which lender could provide the best value fixed rate home loan.

• Home loan calculators

Home loan calculators can help you in your fixed rate home loan search. A borrowing power calculator may help indicate just how much you may be approved to take out in a mortgage. RateCity’s Borrowing Power Calculator may also be able to point you towards lenders that may approve borrowers for said home loan amount.

The Mortgage Repayment Calculator may help you to narrow down your shortlist of home loan options based on which best suits your budget. Enter your details, including interest rate, loan amount, borrower type (owner-occupier or investor), repayment type (principal & interest or interest only) and repayment frequency (weekly, fortnightly or monthly repayments) to see your estimated mortgage repayments, including interest repayments.