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What is a fixed rate home loan?

A fixed rate home loan is a mortgage where the interest rate is set for a certain amount of time. Many fixed rate terms are for between 1 and 5 years, though some lenders offer rate locks for as long as 10 years. 

The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. This can help you to enjoy greater financial security and stability, as well as simpler budgeting.

Why a fixed interest rate?

Are you a first-home buyer, someone looking to refinance, or a long time property investor? Whatever your home loan purpose, you'll need to make a decision around which loan repayment type best suits your financial situation. 

By choosing a fixed loan, you’ll know in advance just how much your mortgage repayments will cost from month to month for the duration of the fixed term. Even if your lender raises its variable interest rates, your home loan’s fixed repayments will remain just as affordable during the fixed term.

On the other hand, if your bank cuts variable home loan rates, this won’t apply to your fixed rate home loan – you’ll keep making the same interest payments until your fixed term ends. Also, fixed rate loans are more likely to lock you into a fixed repayment plan compared to a variable rate home loan, with significant break fees if you change your loan terms before the fixed period is up. You may not be able to choose between monthly repayments or fortnightly repayments, as a shorter repayment period typically means less interest repayments over time. 

Most home loan interest rates can only be fixed for a limited number of years, and afterwards will revert to the lender’s standard variable rate. If you don’t plan your budget accordingly, you could find yourself surprised by a sudden jump in repayments, especially if interest rates rose significantly during your loan’s fixed term.  

The most common fixed loan terms are two-year and three-year loans. However, fixed home loan rate terms can be as short as one year, and climb as high as five years, even ten years in some cases.

Fixed interest rate pros and cons

  • Consistent repayments each month
  • Simplified budgeting
  • "Secured loans" - protected from interest rate rises
  • No benefit from interest rate cuts
  • Less repayment flexibility
  • Costly break fees

Should you split your rate?

If you want the security of a fixed rate home loan, but would also appreciate the flexibility of a variable home loan interest rate when you're buying a new home, you may be able to get the best of both worlds with a split loan. 

These mortgages charge a fixed rate of interest on a percentage of your loan’s balance, and a variable rate on the remainder, so you can enjoy some savings when interest rates are cut, but keep your repayments manageable if rates rise.  

What are comparison rates?

Before you fire up the loan application, you'll want to ensure you do your research around which fixed rate home loan best suits you. 

Most lenders not only charge interest on their mortgages, but fees as well. These may include upfront fees like application fees, as well as ongoing fees like annual fees, late payment fees and fees for making extra repayments. 

Whatever the loan offer is, if the lender also charges high fees you may ultimately end up paying more for your property than if you’d opted for a mortgage with a higher interest rate and lower fees and charges.

To help show the overall cost of different loans more clearly, lenders are required to display Comparison Rates alongside their advertised interest rates. These percentage figures combine the overall cost of each loan’s interest rate and its standard fees and charges, and can be used to approximately gauge the relative affordability of different loans.

It’s worth remembering that some loans also have nonstandard costs that aren’t included in their Comparison Rates, and that Comparison Rates also don’t account for any bonus features that could add extra value to certain loans. It’s usually worth doing some further research after narrowing down your shortlist of mortgage options by their comparison rates.

For a full breakdown of any potential fixed rate home loan costs, it's worth reading the product disclosure statement for your chosen home loan. This should be available on your lenders' website.

How your loan term affects your interest

The length of the fixed-rate period on your home loan is important, as this is the length of time that your repayments will remain unaffected by rate rises. But it’s also important to think about the overall length of your home loan’s term, as this can affect how much interest you’ll pay in total over the lifetime of the loan.

Most mortgages start with a term of 25 or 30 years, though shorter and longer options are available from some lenders. If you choose a shorter home loan, you’ll make a smaller number of repayments, each one for a larger percentage of the loan’s principal. While a short home loan may cost you more from month to month, fewer repayments also means fewer interest charges, so you’ll likely pay less interest in total over the lifetime of the loan.

It's also crucial you think about both the principal & interest of your loan. Stretching out your home loan over a longer term means making more repayments, each one for a smaller percentage of the principal. Meaning the total loan amount is increased over time. While each of these repayments may be more affordable from month to month, you’ll be charged interest a greater number of times, and may ultimately end up paying more in total interest than if you’d opted for the shorter loan term.

Fixed rate home loans for different buyers

First home buyers often find the security of fixed rate home loans appealing, as their stability over the first few years of a mortgage can help borrowers keep their finances under control while they build up their equity.

Investors can also find the stability of fixed rate home loans useful, as they can help keep the loan’s repayments from increasing beyond the property’s rental income during the fixed period, ensuring a steady stream of income from the investment.

In either case, borrowers should remember that when their fixed rates expire, they will revert to the lender’s standard variable rates – be sure to budget accordingly!

Refinancing a mortgage to a new low rate lender can help to reduce your repayments, making your loan more affordable. If your lender lets you fix this interest rate for a few years, you can keep enjoying this extra affordability for longer. This can be good news for both investors and owner occupiers, especially those who are buying a new home. Further, if you're a refinancer who's built up a bit of equity in their home, your loan to value ratio (LVR) will now hopefully be a little lower. Borrowers with lower LVRs typically qualify for those great rates reserved for the safest of applicants.

Fixed home loan features

Fixing the interest rate on a home loan often also means agreeing to a fixed repayment plan, where you’re required to make your scheduled repayments for the duration of the fixed rate period. This may limit your ability to pay extra money onto your mortgage and get ahead on your repayments, even if the money becomes available from a tax refund, a work bonus, or a statistically-improbable lottery win.

But some lenders allow borrowers to freely make extra repayments onto their fixed rate home loans, and a few even offer some additional features to help provide further financial flexibility.

A free redraw facility will allow you to make withdrawals from the surplus balance on your home loan when you get ahead on your repayments, subject to your lender’s terms and conditions. This means that if you have spare savings available, you can add them onto your mortgage to reduce your interest charges and get closer to making an early exit from the loan, confident that you can still put this money back in your pocket again in case of emergency.

An offset account works just like a regular savings or transaction account, but with one major difference – it’s linked to your mortgage. Whatever money you pay into an offset account is included when your lender calculates its interest charges, which can help save you money on your mortgage.

You may also find interest rates are higher when you choose a home loan package, including linked credit cards, transaction accounts and/or a line of credit from the lender.

How long can I fix a home loan rate for?

Most lenders will offer to let you fix your interest rate for anywhere from 1 to 5 years. A few lenders will offer fixed rate terms as long as 10 years.

Fixing your home loan interest rate for a longer term can keep your budgeting straightforward, as you won’t have to factor in changes to your mortgage repayments if variable rates change. Additionally, if variable rates rise during your fixed rate term, you can continue to pay the lower fixed rate until the fixed term ends, effectively saving some money.

Of course, a longer fixed term also means a longer length of time where you’ll likely have less flexibility in your home loan repayments. It’s also a longer period where you won’t be able to refinance your mortgage without paying break fees. And if variable rates were to fall during this period, you’d potentially be stuck paying a higher fixed rate for longer.

Can a broker get a better fixed rate from a bank?

Experienced mortgage brokers often have established relationships with certain banks, and may be able to negotiate with them on your behalf. Additionally, some lenders offer mortgage deals that are exclusive to brokers, and aren’t typically advertised.

Depending on your financial situation and personal goals, a mortgage broker may be able to talk to a bank about organising a lower fixed interest rate for you. The final decision will likely still depend on what the lender is willing to offer for you to become their customer.

Compare fixed rate home loans

With a variety of fixed rate home loan options available to choose from, what is the best way to make your mortgage decision? While low interest rates are important to consider when looking at any home loan, there are also comparison rates, terms and conditions to keep in mind.

Always ensure you read the product disclosure statement of any home loan before applying, and ensure you meet any eligibility criteria required for the lender.

RateCity provides you with the essential details of Australia’s many fixed rate mortgages, and puts them all in one place for simple and efficient reference. With the help of this information, you can determine which lenders offer the interest rates and home loan features, such as the ability to make additional repayments, that best match your financial situation, and make a more informed decision when selecting your next mortgage lender. 

If you're looking for more help finding a fixed rate home loan that best suits your financial situation, it may be worth reaching out to a mortgage broker for additional help and  information.

Frequently asked questions

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

What is the difference between offset and redraw?

The difference between an offset and redraw account is that an offset account is intended to work as a transaction account that can be accessed whenever you need. A redraw facility on the other hand is more like an “emergency fund” of money that you can draw on if needed but isn’t used for everyday expenses.

How does an offset account work?

An offset account functions as a transaction account that is linked to your home loan. The balance of this account is offset daily against the loan amount and reduces the amount of principal that you pay interest on.

By using an offset account it’s possible to reduce the length of your loan and the total amount of interest payed by thousands of dollars. 

Example: If you have a mortgage of $500,000 but holding an offset account with $50,000, you will only pay interest on $450,000 rather then $500,000.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

How does ANZ calculate early repayment costs?

If you have a fixed interest home loan, you’ll pay ANZ home loan early exit fees for partial or full repayment of the loan amount before the end of the fixed interest rate duration. These fees are also payable if you switch to another variable or fixed-rate loan.

The ANZ mortgage early exit fees can vary and you can get an estimate from the lender before you decide to prepay the loan. However, the exact early repayment cost can be determined when you prepay the loan.

The early exit fees are calculated after considering factors like the prepayment amount, the period left before the fixed-rate duration ends, and the change in the market rates since the beginning of the fixed-rate period. The early exit fees may not be charged if you’re paying off a smaller amount. You can check with ANZ to see how much you’ll have to pay.

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

What is a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.


How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.