Fixed Rate Home Loan

A fixed rate home loan allows you to lock in your interest rate for a certain period of time. The period varies between 1 to 5 years. After the expiry of this period, you can choose to switch to a variable rate or reset to a new fixed rate. However one of the downsides of choosing a fixed rate is that if the interest rate decreases during that period, you will miss out on the lower rate.

This loan product is suitable for people who are on a budget and do not want to deal with increasing interest rates. Under a fixed rate home loan, a homeowner will make a fixed amount of repayments, which alleviates the burden of thinking about whether they’ll be able to make the next repayment or not.

You may not be able to access extra features, such as redraw facilities, extra payments, etc., with this home loan. But there are a few exceptions. Some lenders have included these features in their fixed rate home loan product. In Australia, its demand has increased over the years with the introduction of flexible features and relatively low-interest rates.

 

What are the Ideal Loan Terms?

When it comes to deciding what should be the ideal loan terms, it is better to fix the rate for a period between 1 and 5 years. There are some lenders who even offer a term period of 10 to 15 years. Most people, however, choose a fixed rate for a period of three years as it gives them flexibility and a sense of security that they can shift to a variable rate if rates start decreasing in the future. But the decision of choosing a specific term is entirely up to the borrower.

 

Should You Go For a Fixed Rate Home Loan?

There are some people who are better off with a variable rate home loan because fixed rate home loans can have a high exit fee and as discussed, it may not allow you to make additional repayments. It may not be best to go for this home loan option if you plan to do the following:

  • Refinance a home loan
  • Make large repayments in future, or
  • Are thinking about selling your house in the future

If you intend to do any of these in the future, it may be best to go for a variable rate home loan.

 

Lenders Offering Fixed Rate Home Loan

Most people prefer sticking to their bank and try to negotiate a better rate. But it is not always an effective strategy. Different lenders offer different rates when it comes to fixed rate home loans based on their anticipation of future interest rates. Therefore, it is better to find a lender who offers the rates and features that are in line with your financial goals. Given below is a list of some banks that are offering a fixed rate loan:

  • National Australia Bank is offering a 12-month intro fixed, tailored home loan, Choice package 10 years fixed, Choice package 5 years fixed, Choice package 4 years fixed, Choice package 3 years fixed, and Choice Package 2 years fixed
  • The Australia and New Zealand Banking Group offers a fixed rate home loan and fixed rate interest in advance loan
  • Suncorp Australia is offering a fixed rate home loan and money manager fixed rate
  • St George has an Advantage home loan package (introductory 1 year fixed rate loan), fixed rate home loan, and Advantage home loan package (fixed rate loan).
  • Westpac offers Premier advantage fixed rate investment loan, Fixed rate interest in advance investment loan, Premier advantage fixed option home loan.
  • Commonwealth Bank of Australia is offering a Fixed rate loan and MAV package fixed rate.

 

Things to Understand

You should only apply for a fixed rate home loan if you can carefully budget the repayments. It allows you to know the exact repayment amount so that you can plan your finances accordingly. But there are some lenders who charge a certain fee for making early repayments. Therefore, follow your schedule to avoid extra costs associated with the loan. Moreover, some banks have also started offering additional features with this loan, including:

  • Interest only repayments
  • No or low monthly account-keeping fee
  • 100 percent offset facility
  • Redraw facility, and
  • Making additional repayment without any penalty

However, before making any financial decisions, speak to our team of experts as we have years of experience in the market and can guide you in the right direction.