Written by Fixed rate home loans bring with them peace of mind and easy budgeting. But if you’re looking around for a fixed rate mortgage, you may be wondering how they work, what their benefits are and how to find the best deals around.
Fortunately, Savvy makes it easy to compare different home loan offers from a range of lenders to make your home loan search that much smoother. Consider your options here to help make a decision on which mortgage is best for you before you dive into the application process.
Benefits of a fixed rate home loan
Competitive interest rates
Fixed rate loans offer some of the most competitive interest rates currently on the market, so you can save on your home loan
Wide variety of loan terms possible
You choose how long you want to fix your home loan interest rate for, with terms available anywhere from one to ten years.
Pre-approval available
Get home loan pre-approval so you can go home-shopping with confidence knowing how much you’re able to spend.
Low or even no fees
You can compare home loans with no establishment fees and no ongoing account-keeping fees, adding further to your overall savings.
Peace of mind with fixed repayments
You won’t need to worry about interest rate rises, secure in the knowledge your home loan interest rate is locked in.
Under 20% deposits
We’re partnered with lenders who can accept deposits as low as 5% and offer options like guarantor loans to avoid your deposit entirely.
The types of Home Loans
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You can fill out a simple online quote via our form without having to worry about sorting through heaps of paperwork.
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What are the pros and cons of fixed rate home loans?
Protection from interest rate increases
If you have a fixed rate home loan and interest rates increase, you won’t be affected. This could potentially save you thousands in the long run.
Easier to budget
As your loan repayment amount will not change during the term of your fixed rate period you can plan your household budget with confidence.
No ‘rainy day’ fund required
Since you’ll know exactly how much your home loan will cost you for months or years in advance, there’s no need to have a ‘rainy day’ fund to cater for unexpected interest rate increases to bring greater peace of mind.
Miss out on interest rate decreases
If interest rates decrease, you won’t be able to take advantage of the savings offered by the lower interest rates available.
Early repayment restrictions
Your lender may limit your ability to make extra repayments or charge you for doing so. This means you may not be able to use a lump sum to pay your loan off early and save on interest costs should you acquire one.
Early termination costs
If you want to end your fixed rate home loan contract early, you may be liable for costly early exit fees which, could add up to thousands of dollars.
Fewer features to choose from
A fixed rate home loan doesn’t usually come with additional features such as the ability to redraw from your loan or have a linked offset account.
Frequently asked questions about fixed rate home loans
Yes – you can refix your home loan throughout your term. A few lenders do offer fixed-interest terms up to ten years at a time, but one to five years is a more common fixed rate period for most lenders. However, you’ll be subject to whatever the current fixed interest rate is at the time you lock in your fixed term.
A split rate loan is a combination of the two loan types – variable and fixed. Your lender will usually let you decide which percentage of your loan will be fixed and variable – for example, you may choose a 50/50 split or a 40/60 split. This will allow you to take advantage of the flexible features of a variable loan but still be partially protected if interest rates rise. If your loan comes with ongoing fees, though, you may find these are doubled as a result of splitting your loan into two separate accounts.
Establishment and ongoing loan administration fees can mount up when you’re looking for a new home loan. Check the details of your loan carefully, because loan establishment fees can cost up to $700 and ongoing administration fees are often around $10 to $20 a month, which all add up over the life of your loan.
A loan’s comparison interest rate takes into consideration all the additional fees, charges and loan costs which aren’t reflected in a mortgage’s base interest rate. As such, comparison rates provide a truer indication of the cost of your loan. All lenders are required by law to state a loan’s comparison rate, which is based on a $150,000 loan taken out for 25 years.
The revert rate on your loan is simply the standard variable rate it reverts to at the end of your fixed period. This rate may not always be as favourable as the initial rate, so it’s important to be aware of potential revert costs in the lead-up to your fixed term’s conclusion. For example, a loan’s interest rate may be fixed at 2.79% p.a. for the first year, then revert to 2.99% p.a. In this case, 2.99% p.a. is the loan’s revert rate.
Yes – some lenders allow you to refinance to another term of a fixed interest rate when your current loan term expires, although the exact conditions will vary from lender to lender.
Yes – however, because your loan has been fixed for a set period, if you decide to sell your home during that fixed period you may be charged early exit fees to get out of the loan. These fees can be quite substantial and are calculated based on how much fixed loan time is remaining and the initial sum borrowed.
Lenders make decisions about which loans to approve based on the level of risk they perceive the borrower poses. Therefore, it makes sense that the lower risk you present, the lower interest rates will become available to you. Low-risk customers tend to have a good credit score, stable employment and larger deposits. The nature of your property (such as houses, apartments, townhouses and flats) and whether you’re an owner-occupier or investor will also impact the interest rate you’re offered on your loan.
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