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Fixed Rate Home Loans
A fixed home loan is like skiing cross-country – you keep going at a steady pace away from the thrilling dips and uphill battles of the slopes.
That might sound boring, but the security of knowing exactly what your repayments will be for a time can work well for people who are on a strict budget or like to plan ahead.
We’ve put together this guide to fixed home loans to help you decide if it’s the right type of loan for you.
What are fixed home loans?
Unlike a variable home loan, the interest charged on a fixed home loan does not rise or fall with changes to the official cash rate. Rather, it is locked in at the same rate for a certain period of time – typically one to five years.
Full vs split fixed home loan
Some lenders may offer you the choice to split your loan between fixed and variable interest rates. That means you can choose to assign a certain portion of the loan – say, 50 per cent – to the fixed interest term, while leaving the rest variable.
This may allow you to tap into some savings through the variable portion of the loan if the Reserve Bank of Australia (RBA) reduces the official cash rate and your lender follows suit with their interest rates. At the same time, you’ll be semi-protected from interest rate rises.
Who do fixed home loans suit?
Fixed home loans tend to suit people who love to plan ahead and want the stability of knowing exactly how much their home loan repayments will be over the set term. For example, families on a strict household budget.
What are the pros and cons?
Fixed home loans can save you money when interest rates are high or volatile, but you won’t cash in on the savings when interest rates drop.
Also, while some lenders now allow you to make extra repayments to get your loan paid off sooner, they may charge you a fee for doing so. And you may have to pay a break fee if you decide to refinance your loan.
What happens at the end of the fixed term?
At the end of your fixed term, you can choose to commit to another fixed rate, switch to a variable home loan, or refinance.