How long does a fixed home loan rate last?

The interest charged on your home loan can be one of the biggest factors impacting the cost of your home loan repayments. So, homeowners considering fixing their interest rate may be wondering how long this period lasts?

Let’s explore the benefits and risks of a fixed rate home loan, how long a fixed rate period lasts and what happens to your home loan when it ends.

Benefits and risks of a fixed rate home loan

Homeowners typically apply for a fixed rate home loan to take advantage of the benefits of this rate type. By choosing to fix your home loan rate, you are protecting your home loan repayments from any fluctuations in the market. This offers greater stability in your budget as your home loan repayments will remain the same for the duration of your fixed period.

If you can lock in an interest rate before a Reserve Bank of Australia-led cash rate hike, you may save yourself from hundreds of dollars more in interest charges in just a few months. On the flip side, if interest rates were to fall you would miss out on a rate cut and find yourself locked into comparatively higher repayments for your fixed period.

Unfortunately, no one can predict exactly how interest rates will change, but you can keep abreast of the latest interest rate news to see if fixing now may be the right decision.

How long does a fixed rate last?

In Australia, fixed rate periods for home loans typically last between 1-5 years. Some providers may offer longer fixed periods up to 7 years, but this is more uncommon. This is for your benefit as well as the lender's, as you wouldn’t want to get locked into paying a higher rate for 20-30 years if interest rates fall throughout that period.

When your fixed rate period ends, your home loan lender will typically revert your interest rate to its standard variable rate. This can be higher than the fixed rate you were paying, so be sure to mark in your calendar when your fixed rate period is coming to an end. As the date approaches, take time to compare your options to ensure you’re still getting the best possible home loan deal.

What happens if rates rise while your interest rate is fixed?

If the Reserve Bank of Australia hikes the cash rate during your fixed period, or if your lender hikes its interest rates, your current rate and home loan repayments will not be affected.

Once your fixed rate period ends, however, you may find that you’re entering a higher-rate environment. If your home loan rate reverts to the lender’s standard variable rate, as mentioned above this may be much higher. Or, if you consider re-fixing your home loan rate, you may find that fixed rates have been increased as well.

How do you re-fix your home loan?

It’s likely that if you chose a fixed rate home loan to begin with, you may want to stay paying a fixed rate. If your fixed period is coming to an end, it’s worth reaching out to your lender and discussing options around re-fixing to a new fixed interest rate.

However, it’s worthwhile comparing other fixed rate home loan options to ensure your lender is still offering you the best home loan deal for your financial situation and budget. Use RateCity’s fixed rate Comparison Table to view other home loan options and consider refinancing if you find a new fixed home loan that suits your goals and needs better.

Can you split a home loan rate between fixed and variable?

Choosing between a fixed or variable rate home loan is no easy feat. If you’re struggling to decide whether to fix or not to fix, it may be worth considering a split rate home loan.

As the name suggests, a split rate home loan involves dividing a portion of your repayments between a fixed rate and a variable rate. This doesn’t have to be a 50/50 split either, as you can opt to fix, say, 70% of your home loan and make variable rate repayments for the remaining 30%.

A split rate home loan may offer some borrowers the best of both worlds. A portion of your repayments will be protected from rate hikes, but if rates fall a portion of your repayments will fall too. Not every lender offers the ability to split your rate, so ensure you research this option carefully.

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