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Are fixed rate mortgages right for you?

Are fixed rate mortgages right for you?

When choosing a home loan, one of the biggest decisions you’ll make is whether to fix your interest rate. To help you decide if it’s the right choice for you, there are a number of factors to consider.

Choosing a mortgage with a fixed interest rate means that your interest charges will be locked in at a set amount. This means that if your lender decides to increase their interest rates, your repayments won’t be affected. However, it also means that if your lender decides to cut rates, you’ll miss out on the savings.

If you choose a mortgage with a fixed interest rate, your rate will be locked in for a set period of time – typically between one and five years. Once your fixed rate period expires, your home loan will revert to a variable interest rate.

While a fixed rate home loan may be an ideal choice for some borrowers and in some circumstances, there may be better alternatives for others.

What are the pros and cons of a fixed rate mortgage?

As with any financial decision, it’s important to weigh up the potential benefits and risks that could come with fixing your mortgage interest rate, including the following:


  • Enables you to avoid interest rate rises – Fixing your mortgage rate is one way to combat rising interest rates. For as long as you’re in your fixed rate period, you won’t see the impact of a rate hike.
  • Provides certainty – By fixing your interest rate, your repayments will remain consistent. And if you know exactly how much your repayments will be, you could find your household budget easier to manage. 


  • Offers less flexibility – If you’ve fixed your interest rate and want to refinance your mortgage, you’ll either need to wait until the end of the fixed period or pay significant break costs for exiting early. You may also have less flexibility in terms of available features, such as the ability to make extra repayments.
  • Causes you to miss out on rate cuts – If you’ve locked in your interest rate and your lender decides to cut their rates, you’ll miss out on any potential savings – at least until the end of your fixed term.

Who might a fixed rate mortgage be suitable for? 

Fixed rate mortgages can be appealing to borrowers who require more certainty around their mortgage repayments. First home buyers, for example, might find a fixed rate mortgage beneficial as they get used to balancing their mortgage repayments with other expenses.

A fixed rate mortgage may also be attractive at a time when banks are forecasting interest rate hikes. Lenders tend to increase or decrease their interest rates in response to the Reserve Bank of Australia making changes to the official cash rate, as well as other economic factors.

However, it’s important to still compare fixed and variable rates regardless of the forecast, as banks will often raise their fixed rates in anticipation of a rate rise. So, fixing may not always be the most competitive option.

Another alternative is to consider a split home loan, with which you can nominate a portion of your loan to have a fixed rate and the rest on a variable rate. Many borrowers choose to apply the fixed rate to only a part of their loan, so that if rates drop, they can take advantage of the lower interest on at least some of their loan. And if they rise, they likely won’t feel the impact as much as if they were on a standard variable home loan.

Consider using RateCity’s home loan comparison table to compare rates across both fixed and variable home loans.

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



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