1300 088 065

8 mins

Fixed Interest Rates: The Comprehensive Guide

Should I fix my interest rate this year?

Calculate your borrowing capacity

Fixed interest rates were HUGELY popular in 2020 and 2021. 

But in 2023, less than 5% of new loans were fixed. 

Lenders are starting to cut their fixed rates in 2024 as they expect lower interest rates from the RBA this year. 

So the question is:

How do you know if fixed rates are for you? Or if now is a good time to fix? 

Well, that’s exactly what you will learn in this guide.

Table of Contents

What are Fixed Interest Rates?

Fixed interest rates (also known as fixed rate home loans) are interest rates that will not change for a set period, usually between 1 to 5 years. While variable rates can move up and down depending on various factors, fixed interest rates remain static, giving you certainty on your loan repayment.

Fixed interest rates
Fun Fact: They are called fixed rates because your repayments and interest rates remain set for a period… kinda like a fixie bike has set gears. Except fixed rate home loans are much less popular than fixed gear bikes in the hipster community.

Fixed interest rates are a great option if you want to buy a home, as they offer protection against rising interest rates. They also provide you with predictable monthly payments over the fixed period. Whether you are looking to buy your first home or refinance, a fixed rate loan can be a good option.

Why you might need Fixed Interest Rates

As we mentioned, fixed interest rates are basically a way to reduce the risk of your loan repayments increasing. During the fixed rate period, your repayment cannot change, so you know what your loan will cost for a set number of years.

So if you fix your interest rates for, say, 5 years, your repayments will stay at the same amount during this 5-year period regardless of the bank, market or RBA interest rate movements. 

Fixed rates would be perfect for you if:

  • You are concerned about interest rate increases.
  • You are concerned about a short-term reduction in your income.
  • You would prefer to know what your home will cost over the next few years.

For example, if you fixed your $300,000 home loan at 4.50% for 5 years, and after 2 years, the RBA increased interest rates by 2.50%, your fixed rate would remain at 4.50% until the end of the 5-year fixed rate term.

But the fixed interest rates come with some limitations…

When Fixed Rates might not suit you

When it comes to Fixed Rates, the flip side is also true—if interest rates decrease in the market, the lower rate is not passed onto you. That’s just the start of the limitations…

Fixed home loans do come with a few limitations when compared to variable home loans.

Fixed interest rates
Fixed rates can be good, but they also come with a few limitations.

First and foremost, most Australian lenders severely limit how much you can make in additional repayments per year.

For example, if you got paid a large bonus, received a tax refund or wanted to make additional repayments over the set ones – you will have to pay a penalty.

There are some banks that will let you make up to $10,000 in extra repayments on a fixed-rate loan, but if you receive anything over this, you either have to:

  • Miss out on the benefits of paying less interest, or
  • Pay fixed break costs to end the set term early

This leads us to the next point: Fixed Break Costs.

Why would I have to pay Fixed Break Costs?

People look at breaking their fixed rate early for several reasons.

  • Maybe interest rates have come down significantly, and they want to pay less in repayments
  • They could have sold their property and need to pay back the loan
  •  Or even want to reduce the loan amount.

Banks and lenders will charge you a ‘fixed break cost’, calculated as the amount they will lose if you end your fixed rate early.

fixed interest rates
Cutting ties with your lender after you have fixed your rate can be expensive, you might need to pay Fixed Break Costs, sometimes called an early repayment fee.

Most of the banks are pretty similar in their approach. For example, according to BOQ:

When you decide to fix your loan interest rate, we enter into a contract with you to fix the interest rate for your loan for a specified period. To enable us to fund your loan, we enter into a contract with a third party to lock in our funding costs at a fixed rate for the same period as your contract with us.Under Australian law if someone breaks their contract and the other party suffers a loss as a result, the person who breaks the contract is required to compensate the other party for that loss.

How this amount is calculated exactly will depend on when you want to break the fixed rate, how much is still owing on the loan, what the remaining term is and the interest rate differential.

Every bank uses a different formula, but BOQ uses the following:

Break Cost = Loan amount prepaid * (Interest Rate Differential) * Remaining term.

A Fixed Rate break cost calculation

Fixed rate break cost calculation can be complex, but let’s simplify it…

Some banks’ fixed break cost formulas look crazy complicated. Let’s try to do a simple example to show how to calculate fixed break fees:

  • A loan amount of $500,000 is fixed for 5 years and then is entirely repaid by the customer with 2.5 years of the loan’s original fixed term remaining.
  • The 5-year bank rate on the date the loan was fixed was 5.50% p.a., but the rates have fallen since then. When the contract was broken, the current 2.5-year bank rate was 3.50% p.a.
  • The difference between the wholesale rates on the date the loan was fixed and when the contract was broken is: 5.50% less 3.50% = 2.00% Interest Rate Differential.
  • The approximate Break Cost would therefore be: $500,000 x 2.00% x 2.5 = $25,000

Yep, $25,000 to pay out the fixed rate early!

Sometimes there are ways around breaking fixed rates. For example, if you have sold a property, like substituting security or using a term deposit as security. 

We’d suggest speaking with our expert Mortgage Brokers about your situation and what can be done on 1300 088 065.

Can I make extra repayments without a Fixed Rate penalty?

major banks
Depending on the bank or lender, it is possible to pay extra on your fixed rate loan.

The good news is it is possible, depending on which bank you are with.

We have broken down the major banks, the name they used for their fixed rate home loan, fixed break cost and the maximum amount you can make in extra repayments.







Commonwealth Bank Fixed Rate Wealth Package Home Loan

Up to $10,000 per year

Early Repayment Adjustment (ERA)


NAB Choice Package Fixed Rate Home Loan

$20,000 during your entire fixed rate period

Prepayment fee and economic cost


Fixed Options Home Loan

$30,000 throughout the fixed rate period

Break costs


ANZ Fixed Interest Rate 

Lower of $5,000 per year, or 5% of the original loan amount

Early Repayment Fee (ERF)

St George

Fixed Rate Home Loan – Owner Occupied

$30,000 per year

Break costs


Suncorp Fixed Rate Home Loan in Home Package Plus

$499.99 in addition to your monthly repayment

Early payment interest adjustment (EPIA)


Fixed Rate Home Loan

$10,000 per year

Break Costs

These policies are always changing.

As you can see above, the fixed break cost can be a big money maker for the banks, so you want to double-check their current policy before putting extra into your fixed rate home loan.

We’d suggest calling your lender or speaking with our expert Mortgage Brokers to confirm the current policy on 1300 088 065.

How to find the best Fixed Rate mortgage

There are fixed interest rates that can give a little flexibility.

There are fixed interest rates that can give A LOT of flexibility.

And even fixed interest rates loans with offset accounts

In this section, we’ll show you how to find the best fixed rate mortgage.

Fixed interest rates
Many lenders offer fixed rates , but how do you find the right one?

Does the Comparison Rate matter?

The Comparison Rate is a fast way of seeing the true cost of your loan. It factors in the interest rate, fees and all charges over the life of the loan.

The lowest rate might not indicate the cheapest option, as some banks and lenders charge MASSIVE ongoing and exit fees. So, while the interest rate might be low – they will sting you with the other fees.

Comparison Rate Example

The benefit of a comparison rate is that it gives you an even playing field for the loan and lets you compare apples with apples across different lenders’ products.

Why choose a 1 year fixed rate?

A large number of home buyers look to fix for 1 year because they don’t like committing for too long a period for all the reasons already outlined above — namely:

  • Interest rates could drop over the medium term.
  • You might want to make additional repayment.
  • You might want to sell your home in the next few years.

The benefit of fixing for 1 year is that you will be able to budget around your loan payments over the next 12 months and might even have access to a lower introductory interest rate offered by the bank to get you settled in.

What banks have the best 1 year fixed rate?

fixed interest rates
In this section we look at the best 1 year fixed rates available and if they are suitable for you.

Why choose a 3-year fixed rate home loan?

Most people skip over the 2 year fixed rate and look straight for the 3 year fixed rate to help avoid any volatility in the money markets.  

fixed interest rates
Rates on the money market determine the banks’ 1, 3 and 5 year fixed rate

In other words, they benefit more from fixing for 3 years because 1 and 2 year rates are too short-term.

Why go for a 5 year fixed rate?

A 5 year fixed rate will give you the highest level of certainty in your mortgage repayments. Also, banks can be negotiable on their longer-term fixed rates, so you might be able to get a better deal.

As we have covered, longer-term fixed rates are not suitable for everyone – if you are looking at making additional repayments to your loan, think you could sell the property during this time or need extra flexibility on your loan like an offset account – it might not be a good idea to fix your rate for 5 years.

Please call us on 1300 088 065, or get in touch online, and one of our Mortgage Brokers will contact you to discuss your options.

What is the cheapest fixed rate home loan?

The cheapest rate does not mean paying the lowest amount of interest.

When looking at a fixed rate, you want to factor in the application and ongoing fees and what the fixed rate will change to when your fixed rate period ends.

Larger banks will be a bit cheeky and, in a bid to make a little extra money when your fixed rate period expires, they will automatically put you back to their standard variable rate – without any discount!!!

(Yeah this sucks)

To avoid paying extra interest, talk to your Mortgage Broker before you fix your rate to understand what happens after the fixed rate period.

At Hunter Galloway, we will contact you 3 months before your fixed rate period ends to review your options and see if you want to re-fix your interest rate. Alternatively, we will negotiate a discount on your standard variable rate.

How do I know what features are important?

Banks have created a swath of bells, whistles and fixed rate features that might all sound super confusing to you. So how do you know what features are important?

Fixed interest rates
How do you know what features are important for you on fixed rate home loans? Let’s find out…

Let’s break down the basics of all the features—what they do and who they are good for.

  • Rate Lock. Fixed Rates fluctuate daily, and banks will update their fixed rates according to these fluctuations. The problem is you can look around for a great fixed home loan, sign the loan contracts at, say, 6% and then find out on the day of settlement the fixed rate has changed to 6.99%. With a rate lock, you pay the bank an extra fee to secure the interest rate at the time of loan application. So if the interest rate was 6% when you applied, you pay the rate lock fee to make sure it stays at 6% until you settle.
  • Extra Repayment. Different lenders have different allowances when it comes to making extra repayments on a fixed loan. This can range from a few thousand dollars to up to 5% of the original loan amount. Make sure you ask the question upfront if making extra repayments is an important feature to you. In most cases, if you make extra repayments, you will have to pay fixed break costs.
  • Redraw. Similar to making extra repayments, some fixed rate lenders will allow you to take out the funds as redraw. A word of warning here: while some lenders will let you make extra repayments – some will consider withdrawing the funds as redraw, therefore ‘breaking’ the fixed rate contract, and will charge you LARGE fees to access your own funds!
  • Interest In Advance. This is a terrific product for property investors and allows you to make bulk tax deductions by prepaying your interest before 30 June. It can be beneficial from a cash flow and interest rate discount perspective, with some lenders giving you discounts of up to 0.20% off their regular fixed rates.
  • Fixed Rate Offset. Most banks will only give you a partial offset to a fixed rate loan, meaning all the money in your offset account will not reduce how much interest you are paying. There are a handful of lenders that will give you a 100% fixed rate offset account, meaning you have access to your funds as well as the benefit of reducing your interest costs.
  • Fixed Rate Construction Loans. As with the fixed rate offset, a small handful of lenders will allow a fixed rate construction loan!
  • Split Loan. A split loan allows you to have part of your loan as fixed and part of your loan as a variable split. This will give you the best of both worlds, which takes us to our next section…

Our favourite fixed intereest rates strategy

In this section, we’ll reveal some of our favourite “quick & dirty” fixed rate strategies.

Let’s dive right in…

Best of Both Worlds

fixed interest rates
The best of both worlds is our favourite strategy and it is very simple…

The best of both worlds strategy is simple:

  • Assume you would like a loan of $300,000.
  • First, you decide what fixed rate term you would like.
  • Let’s say 3 years fixed with ING.

Then you think about how much of your loan you would like to pay back extra in the next 3 years. For example, if you expect to get a $10,000 bonus per year for the next 3 years, you’d want to pay down an extra $30,000.

With the best of both worlds strategy, you can fix $270,000 of your loan.

And set up a $30,000 split loan as a variable home loan rate.

This means you can have a 100% offset against the $30,000 variable loan AND have the stability of a $270,000 fixed rate portion.


A quick word of warning

We’ve said it once, and we’ll say it again – a fixed rate isn’t for everyone.

I fixed a few years ago worrying that interest rates would shoot up.

And they did, for a few months.

…And then they went down by a few per cent.

interest_rates_going_up_australia_chart (1)

Consequently, my repayments were HUGE and breaking the fixed rate cost thousands of dollars.

Worse yet, I ended up putting the property on the market and selling it – during the fixed rate period.”

So if you aren’t 100% sure that you will be holding the property over the medium to longer term, then a fixed rate might not be for you.

Bonus: Surviving the Mortgage Cliff—strategies to cope with Australia's soaring home loan rates

A massive financial challenge looms for millions of Australian households with home loans. The issue arises from the expiration of roughly 880,000 fixed-rate mortgages this year and another 450,000 set to end in 2024.

These homeowners, who have benefited from the record low-interest rates during the pandemic, are about to transition to variable loans, which have had a steep hike in the last 12 months and the most drastic increase ever recorded. 

This switch implies a significant increase in monthly home loan repayments. For example, on a $500,000 mortgage, the estimated increase in mortgage repayments from ultra-low fixed rates to the current variable rate is from $1,200 to $3,000 a month! 

This impending reality has been labelled the “mortgage cliff”, and some homeowners may need to source thousands of dollars more each month for repayments.

Are you faced with the mortgage cliff? Here are some things you can do to survive it…

1. Negotiate your mortgage interest rate with your bank

Don’t just watch as your repayments increase. Instead, research new customer rates and competitors’ rates, then call your bank’s home loans team and request a lower rate. If your loyalty and good credit history aren’t enough to earn a significant reduction, consider pushing harder or even switching lenders. Your best leverage points are long-term membership, consistent repayment, stable employment, high equity, a good credit score, and occupying the property yourself.

fixed interest rates mortgage cliff

2. Consider refinancing your home loan

If your current bank refuses to lower your interest rate or provides an insufficient discount, switching to another lender could be an option. However, refinancing has its costs, so weigh the potential benefits against these expenses. Also, consider using a mortgage broker to guide you through this process and remember to take note of any cash-back offers or other incentives from potential new lenders.

3. Seek assistance if you're struggling

If you’re already having trouble meeting your mortgage payments, reach out to your lender’s hardship team. They can offer options like a freeze on repayments, a cheaper loan, or a loan term extension, making monthly payments more affordable. For instance, a $1 million investment loan with a 20-year term can be refinanced to a 30-year term, reducing monthly repayments by $1,000! It’s important to reach out early to have more options and avoid damaging your credit score.

4. Review and adjust your budget

With mortgage costs rising, finding extra money by revisiting your budget and cutting back on non-essential expenses is another strategy. You can reduce discretionary spending on services like holiday travel, dining, etc. This can be done by allocating a specific amount for discretionary expenses, paid from a dedicated account, making you more aware of your spending without needing to track every transaction. Use a budgeting app to track your spending and identify areas for potential savings. 

5. Consider getting extra income

If necessary, consider finding a side hustle for extra income. You may also want to explore income-increasing opportunities like new roles, working more hours, retraining, or second jobs. With a low unemployment rate of 3.5%, you may be able to negotiate fair remuneration. If you have Large leave balances, you can cash them out for immediate funds. Another option is to use financial buffers, such as cash savings in an offset account, built during low-interest rate periods.

6. Consult a financial counsellor

If rising mortgage rates have become part of a larger financial issue, and you’re sinking into debt, reach out to a financial counsellor. The National Debt Helpline in Australia offers free, confidential, and independent advice from trained financial counsellors, who can guide you through your options and help you understand your rights.

Should I fix my rate?

Your fixed or variable rate preference will come down to your individual situation and circumstance. That is why you need an expert mortgage broker to help you decide.

If you are looking at purchasing a property or refinancing, our team at Hunter Galloway can help.

We make it simple to get through the home loan process with our team of experts. If you are a first home buyer, we will help walk you through the process to complete your first home buyers grant application. 

Our service does not cost you anything, as we are paid by the lender when your home loan settles. To chat about your deposit, lending and investment lending options, book a time to sit down with us or feel free to call on 1300 088 065.

Hunter Galloway - Our Dedicated Team
Our team of home loan experts is here to help you buy a home in Australia.

Further resources for homebuyers:

The information on this page is general in nature and should not be considered as advice. Before you act on this information, you must seek independent legal and financial advice.

Why Choose Hunter Galloway As Your Mortgage Broker?

Mortgage Broker of the Year
in 2017, 2018 and 2019
The highest rated and most reviewed
Mortgage Broker in Brisbane on Google
One of the lowest rejection rates

across Mortgage Brokers in Australia

Approximately 40% of home loan applications were rejected in December 2018 based on a survey of 52,000 households completed by 'DigitalFinance Analytics DFA'. In 2017 to 2018 Hunter Galloway submitted 342 home loan applications and had 8 applications rejected, giving a 2.33% rejection rate.
We have direct access to 30+ banks
and lenders across Australia