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When is the right time to switch to fixed interest rates?

Alex Ritchie avatar
Alex Ritchie
- 5 min read
When is the right time to switch to fixed interest rates?

Experts will tell you that there’s no perfect time to know when to make a financial decision, but there are indicators you can look for to know if now is the right time to consider switching to a fixed rate home loan.

There is no way to predict the bottom of a market, so without a crystal ball you may find it hard to pinpoint when a fixed rate is ideal. But there are several reasons that a homeowner may want to consider choosing a fixed rate home loan.

It may be worth considering a fixed rate home loan if…

  • You need stability in your repayments

One of the biggest advantages of a fixed rate home loan is that your interest rate is set for an agreed upon period, typically 1-5 years. In this time the rate will not fluctuate, and neither will your mortgage repayments.

If you’re the type of homeowner that needs stability in their budget or, say, you’re a first home buyer and every dollar counts, it may be worth considering a fixed rate home loan.

  • You want to save for a rainy day

With the added certainty of knowing exactly what your repayments will be each month, and in knowing that you’re protected from any rate hikes throughout the fixed period, a fixed rate home loan may allow you to budget to grow your savings.

Unexpected increases to your expenses, especially your biggest expense (your mortgage repayments) will always put pressure on a household budget. If you’re suddenly spending more of your income on your mortgage, that’s money not going into your savings or future investments. In this way, a fixed rate home loan may allow borrowers to budget more easily for savings.

  • The market conditions call for it

A fixed rate home loan may offer some protection to borrowers from rate fluctuations in the market, such as the Reserve Bank of Australia (RBA) hiking the cash rate.

If you’ve done your research on the market conditions, currently offered variable interest rates and forecasted rate hikes, and you’ve calculated that your home loan repayments may be more affordable with a fixed rate, it could be worth considering fixing.

However, there is no guarantee that:

  • A fixed interest rate will be a more affordable option, or
  • Your lender won’t hike fixed rates higher than they could have risen to.

For example, in the lead up to a predicted cash rate hike, lenders may begin hiking their fixed rate products ahead of time to follow this forecast hike. But there is no guarantee that the RBA will hike interest rates as predicted by a lender. So, you may find yourself fixing a higher-than-average interest rate that after some time costs you more than if you opted for variable.

Is it too late to fix my home loan rate?

If you’re searching for answers around the right time to fix a home loan because the RBA has already started hiking rates, don’t fear as it may not be too late to fix.

RateCity research crunched the numbers around the May 2022 cash rate hike to see if fixing at that point would be more affordable than sticking with variable, as many big banks predicted even more rate hikes to come. The research found that at the time if a borrower switched to the lowest 2-year fixed rate on the market from the RBA’s average variable ongoing rate, they may save over $13,000 in interest charges in that period if the rate hike predictions came true.

This is a specific example relating to a time when multiple rate hikes were forecast, but fixed rates had already been lifted numerous times in the lead up to the first hike in May 2022. But it’s an important reminder about doing your research around what is being predicted by the experts, the macroeconomic conditions that impact rate hikes (inflation, employment, wage growth etc.) and the interest rates on offer at the time of comparison.

If you’re weighing up whether now is the right time to fix your home loan or not, consider using RateCity’s Mortgage Repayment Calculator to see what your repayments may look like with different home loan interest rate scenarios.

Hop on a comparison table and filter down your options to see what fixed rates are currently on offer that may suit your financial needs and budget, what your current interest rate is, and what experts are saying about the market.

If you’re still not sure what the right choice to make is, it may be worth speaking to a mortgage broker for more detailed financial advice. You could also consider if splitting your home loan rate between variable and fixed may offer a ‘best of both worlds’ alternative for the time being.

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Product database updated 29 Mar, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.