Should you choose a fixed rate home loan?
A fixed rate home loan allows borrowers to lock in or ‘fix’ their rates for a set period, usually between one and five years. This means the interest rate won’t fluctuate or change for that specific period, unlike a variable rate home loan.
As with any home finance option, fixed rate home loans have their pros and cons. Read on to learn more about fixed rate home mortgages and see if it’s right for you.
What can a fixed rate home loan do for you?
A good home loan is one that can meet your finance needs. It should let you save on costs and provide features that make it easy to manage your repayments. Here’s what a fixed rate home loan can offer borrowers:
Fixed rate mortgages can offer consistency and stability
Many borrowers choose a fixed rate mortgage for cash flow certainty. In a fixed rate home loan, the repayment amount will stay the same throughout the fixed period. You can plan and budget for weeks or even months ahead. This is especially useful for investors who need to have a clear financial plan for their investment project.
Fixed rate mortgages can give you options
The rates are fixed, but your options aren’t. You can customise your fixed rate period and choose between one and five years. After the fixed rate term, you can consult with our Customer Care Team to see if you can re-enter a fixed rate period with an updated interest rate.
At loans.com.au, you can get a weekly, fortnightly, or monthly repayment scheme. You have the freedom to choose a repayment frequency that fits your financial situation. This can help make keeping up with home loan payments more manageable.
Fixed rate mortgages can help you lock in low rates
When you enter a fixed rate home loan agreement, you’re essentially locking in the interest rate for a set period. The fixed rate protects you from sudden interest hikes, which could increase your repayments and total interest costs over time.
With a fixed rate mortgage, your interest rates are locked for an agreed-upon period. This means you can take full advantage of low interest rates.
Before settlement, a home loan interest rate could rise, increasing the cost of your loan and placing an added burden on your budget. However, opting to lock in your fixed rate will protect you from this risk.
When is a fixed rate home loan less ideal?
A fixed rate home loan does offer certain drawbacks. Below are some disadvantages of fixed interest rates:
Fixed rate mortgages offer fewer features
Often, fixed rate home loans don’t allow borrowers to make free additional repayments. And if you do make additional repayments, you could incur penalties. Fixed rate mortgages also typically do not offer redraw facilities or offset sub-accounts. This could make it harder to save on interest and stop you from paying off your mortgage quicker. At loans.com.au, we allow borrowers to make additional payments of up to $10,000 per fixed year without penalty.
In addition, if you opt to adjust your loan or exit your mortgage before your fixed term ends, you may have to pay expensive break fees.
Fixed rate mortgages stay the same even if interest rates fall
The downside of your rate being locked in for a length of time is that when interest rates are cut, your home loan’s fixed rate won’t go down with it. Unfortunately, you can’t take advantage of future rate cuts if you’re still in the fixed rate period of your home loan.
How do I know if a fixed rate home loan is the right choice?
It all depends on your personal circumstances. Ultimately, you need to decide if it’s wise for you to choose fixed or variable based on your own short-term and long-term plans.
The fixed rate home loan gives you security, and the predictable repayment amount could help you manage your finances better. But in return, you’ll lose out on loan features and could face hefty fees if you make extra repayments.
If you want to know more about fixed rate home loans, speak with one of our friendly lending specialists. They can give you insight on how fixed rate loans work and see which fixed rate mortgage is right for you. Call 13 10 90 today or arrange a call at your convenience.
You can also check out our range of home loan options and see for yourself which one suits your needs best. If you’re ready to get a home loan, you can apply online now!
Do I have other fixed rate home loan options?
If you like the benefits of a fixed rate home loan but are not completely sold on the whole package, you’ll be happy to know that there is a compromise— a split home loan. Just like the name suggests, it’s a combination of a fixed rate mortgage and a variable rate mortgage.
With a split home loan, a part of the loan has a fixed rate, and the other has a variable rate. For example, if you divide your home loan into a 60:40 split, you could have 60% of your loan amount incur a variable interest rate while the rest has a fixed interest rate. This way, if the rate rises, your repayment will only increase on the variable half of the loan.
When choosing between a fixed rate, variable or split rate loan, it's important to keep in mind your goals and individual financial situation.
For more information on what type of loan would suit you best, talk to one of our friendly lending specialists! They’ll be more than happy to tell you about your home loan options.
Find out in under 2 minutes if you qualify for one of our low rate home loans.
About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
