Fixed Rate Home Loans
Interest rates can typically be fixed for one to five years.
This means that even if rates change, your repayments stay the same over the fixed period. This will help you to manage your budget by knowing exactly what you’ll have to pay.
A fixed interest rate can be useful to help protect you against potential interest rate rises, however it can mean that you’re stuck with the fixed rate even if variable interest rates decrease during the fixed period. Another thing to consider is there may be significant break costs to change the loan before the end of your fixed term.
The pros of a fixed rate are:
- Rate rises won’t impact you: If you want predictability and stability in your repayments over the next 1 to 5 years, locking in a fixed rate could be the way to go. Some lenders will guarantee a certain fixed rate before settlement but a “rate lock fee” may apply.
- Set and forget: Locking in a fixed interest rate means your repayments stay the same throughout the fixed period (typically between 1 to 5 years). Knowing your loan repayments will make it easier to budget and manage your cash flow – giving you more peace of mind.
The cons of a fixed rate are:
- Less flexibility: Fixed rate loans limit a borrower’s ability to pay off their loan faster by restricting additional repayments or capping them at a certain amount a year. Significant break fees can apply if you want to refinance, sell your property or pay off your loan in full before the fixed term has ended.
- Rate cuts won’t benefit you: If you’ve signed up for a fixed rate, you won’t benefit from any cuts your lender makes to their home loan rates over the fixed term.