Fixed Home Loans
Fixed home loans are, on the surface, very straightforward: the interest charged on your home loan is fixed at a set rate for a certain period of time, usually between one and five years.
They are best suited to those looking for certainty in their household budgets and who don’t want to play Russian roulette with interest rates. The interest rate on a fixed loan is usually slightly lower than a variable home loan rate.
These loans can be money-savers in times when interest rates are either high or volatile but, if interest rates drop, you can miss out on big savings.
Despite the fact that Australian interest rates have stayed comparatively low and stable in recent times, fixed home loans have remained popular, though perhaps not as popular as variable home loans.
Many fixed home loan products now also offer features and flexibility that can help you pay off your home loan faster, such as extra repayments and redraw facilities. But this can also be where many people come undone. Make sure you read the fine print carefully as many fixed rate loans will allow you make extra repayments, top up your loan or refinance – but will charge you a fee for doing so. These ‘break costs’ can sometimes run into thousands of dollars, so make sure you’re aware of any included in your home loan contract.
The upside of this type of home loan is that if you plan to stick to a rigid budget, you have the security of knowing exactly what your outgoings will be for the forseeable future. Those with families in particular often prefer the certainty of fixed loan payments rather than being at the mercy of fluctuating interest rates.
When you’re deciding if a fixed home loan is right for you, the most important point to consider is how long you want to be locked into a fixed rate. Fixed rates are available for between one and ten years but the most popular term is three years.
At the end of your fixed term, you have three options:
- Commit to another period of fixed interest rates
- Switch to a variable home loan product; or
- Refinance your loan with either your existing lender or another lender.
If you’re undecided which way to go, use a home loan calculator to help.
Compare your fixed home loan options at iSelect.