Compare Fixed Rate Home Loans - Australia

Fixed rate home loans may be attractive if you prefer repayment stability, or if you’re particularly nervous about increased interest rates. But with all the talk of interest rates, deciding if a fixed rate loan is right for your financial situation can be a nightmare.

That’s why we put together this guide. It’ll give you facts about fixed rate home loans, so you have tools to help pick a suitable loan and buy that home or investment property you’re longing for.

A fixed rate home loan is any home loan that charges a rate of interest that can’t change for a specified amount of time. Australian lenders don’t offer home loans with interest rates that are fixed for the life of the loan. Instead, they offer fixed rate periods of around one to five years, usually. At the end of the fixed rate period, you may be able to apply for a further fixed interest period, although the new fixed rate may be different to the initial rate. Very rarely, a lender might offer a longer fixed rate period, for example, up to 10 years. After that initial fixed rate term, loans revert to a variable interest rate. Why do interest rates vary? It’s a great question, and to understand this fully, you’ll need to understand something called the cash rate.

On the first Tuesday of every month (except January), the board of the Reserve Bank of Australia (RBA) has a meeting at which members decide, among other things, what the cash rate will be for the next month. The factors that affect the RBA’s cash rate decisions are wide and varied, but will include how the inflation rate is tracking against their target. The cash rate is one factor, along with general lending market conditions, that influences the interest rate lenders pay when they borrow from each other, and changes to the cash rate can have a flow-on effect on home loan interest rates. You see, many lenders will borrow money to lend to their customers, so if they want to make a profit, they have to ensure they charge interest rates that are above the rate they pay when they borrow funds.

Because the cash rate and the lending market can change, lenders will change the amount of interest they charge their customers. And that’s why the interest rate can change in a variable rate home loan and after the expiry of the fixed rate period of a fixed rate loan.

The mechanics of a fixed rate home loan are the same as for other home loans. You submit an application. The lender reviews your situation. It issues a loan offer, which includes the loan amount, loan term (often up to 25 years or 30 years), all the once-off and ongoing fees and charges, and the full set of terms and conditions. And then you sign the contract and the lender will transfer the loan balance at settlement.
The difference arises when you begin repaying the loan.

A fixed rate loan will have a constant interest rate and repayments throughout the initial one- to five-year fixed rate period. After that, the interest rate becomes variable, unless you refinance your existing home loan with another loan that offers an initial fixed interest rate or are able to apply for a new fixed rate period.

Repayments over the fixed rate period are kept consistent, and repayments over the variable rate period are also kept consistent when the interest rate is stable. That might seem strange given your loan balance will decrease over time and therefore the amount of interest you have to pay will also decrease. But lenders do some complicated maths to figure out how much you need to pay over the whole period to repay what you borrowed with interest while paying the same amount at each repayment.

There are several reasons you might decide to consider a fixed rate home loan, including:

Predictable repayments. One of the main benefits of a fixed rate home loan is that the interest rate remains unchanged during the agreed fixed rate term, which means your repayments will stay the same, no matter what the RBA does with the cash rate. This can provide peace of mind, because you won't have to worry about your repayments going up.

Easier budgeting. Fixed rate home loans provide stability in your repayments, which can make it easier to budget. You'll know exactly what your repayments will be each month during the fixed term, which can help you better plan the rest of your finances.

Overall, a fixed rate home loan is a popular choice for those who value stability, predictability and peace of mind when it comes to their home loan repayments. It can help those who want to budget with more certainty, and avoid the concern of interest rate rises on their repayments.

The amount you’ll need to save for a fixed rate home loan deposit depends on several factors, such as the purchase price of the property, the loan-to-value ratio (LVR) and your lender's requirements. The LVR is your loan amount divided by the property value, expressed as a percentage.

For example, if you’re buying a $500,000 property and you need a $400,000 loan, your LVR is 80 per cent.

The minimum deposit amount is usually 20 per cent, particularly if you’re looking to avoid costly lenders mortgage insurance or using a guarantor. However, there are lenders in Australia who will allow a deposit of 5 per cent or less in certain circumstances.

While home buyers are generally encouraged to save as much as they can for a deposit, there are a range of government schemes available to eligible Australians that can help unlock a home loan with a smaller than 20 per cent deposit.

Some of the common fees for a fixed rate home loan in Australia include:

• Break fees. These are fees that are charged when you repay your fixed rate home loan in full or refinance to another lender before the end of the fixed rate term. Break fees are a way for the lender to recoup some of the costs of providing the loan. The amount of the fee can vary, but it’s often a percentage of the outstanding loan balance.
• Application fees. This fee is charged for setting up the loan, and it can include fees for loan processing, legal fees, and property valuation fees. Application fees are usually charged as a one off flat fee.
• Ongoing fees. Fixed rate home loans may also come with ongoing fees, such as an annual fee or a monthly fee. These fees are charged for maintaining the loan and providing ongoing customer service.

It’s important to consider these fees, and any other fees charged by a lender, to ensure you get a deal that is suitable for your situation when comparing fixed rate home loans. Before applying for a loan, be sure to ask the lender about any fees and charges and make sure you understand the full cost of the loan.

The interest charges on a fixed rate home loan are calculated based on the amount of money you borrow, the interest rate, and the loan term for the fixed period. The interest rate is usually expressed as an annual percentage rate (APR) and is used to determine the amount of interest you'll pay over the life of the loan.

To calculate how much you’ll be charged in interest on a fixed rate home loan, you’ll first need to know the fixed interest rate. This is the rate at which interest is charged on the loan, and is set at the time your loan is approved. The fixed interest rate remains the same throughout the agreed term, even if market interest rates change. Then, to calculate your interest charges, you’ll also need to know the loan amount and the loan term.

To calculate the interest charges, you can use a home loan calculator, such as the one found on MoneySmart.

Interest charges on a fixed rate home loan are calculated based on the outstanding loan balance so, as you make regular repayments, the outstanding loan balance will decrease, and the interest charges will also decrease (unless you’re paying interest only).

Another important factor to keep in mind is that most home loans with a fixed rate only fix those rates for a limited period of time - usually up to five years - and the rest of the loan will be at a variable rate unless you lock in a new fixed rate at the end of the fixed term. Importantly, this means that the interest rate is likely to change, which would also change the total interest charged for the life of the loan.

We’re not going to tell you which fixed rate home loan to choose because there’s no best home loan — they each have pros and cons that will impact your goals and situation differently.

However, once you’re sure you want to apply for a fixed rate home loan, it can help to compare a range of home loan options. By comparing fixed rate loans, you can be confident you’ll have information to help you choose a home loan that’s suitable for you.

Our main home loan comparison page includes a guide to help compare home loans. You can update it specifically for fixed rate home loans, by adding these questions into the mix:

• Is your loan-to-value ratio (LVR) going to be more than 80 per cent? (That would mean the funds you’ve saved as a deposit would be less than 20 per cent of the value of the property you want to buy.)
• Will you have a greater capacity to pay larger repayments in a few years time?
• Do you want to be able to make extra repayments when you have spare cash? If so, you may be limited to a smaller number of fixed rate loans that don’t penalise extra repayments.
• How much do you value repayment certainty?

When it comes to securing a fixed rate home loan, the waiting time can vary depending on a number of factors but, it can take as long as four to six weeks for an individual to be approved for a fixed rate home loan in Australia.

The loan waiting time can be affected by a number of things, including the:

• Complexity of the loan application
• Type of property being purchased
• Lender's internal processes.

Every lender is different, and the loan waiting time can vary from one lender to the next.

You may be able to help speed up the process by having all of your financial and personal information ready and organised when you begin your loan application, including your income and employment information. Additionally, having a pre-approval in place can significantly reduce the loan approval waiting time, because it allows the lender to begin processing your loan application as soon as you’ve found the property you want to buy.

When you refinance a home loan, you essentially take out a new mortgage to pay off your existing mortgage. It can be a popular option for homeowners who want to take advantage of lower interest rates or change the terms of their mortgage. If you have a fixed interest home loan, however, you might be wondering if that’s a possibility for you. The short answer is yes, you can refinance a fixed rate home loan in Australia, but there are some factors to consider, and it might not work for everyone.

A fixed interest rate home loan can be attractive to borrowers who want stability and predictability in their monthly payments, but if interest rates fall, you might find yourself paying more than you need to on your mortgage. At certain times, refinancing a fixed rate home loan could help you take advantage of lower rates that could save you money over the life of your loan.

Before you refinance, though, it's important to consider the costs that will be involved, to figure out whether the switch will be worth it for you. Refinancing can come with fees such as legal fees, property valuation fees, and discharge fees - and ending a fixed rate home loan early will usually come with a break fee. Weighing up the potential savings against these costs can help you to decide whether refinancing could work for you. It's also a good idea to shop around and compare different home loan products and interest rates.

In Australia, there are many options available when it comes to refinancing a home loan. You can work with a mortgage broker who will help you understand the costs of refinancing and help you find a loan for your needs. You can also do your own research and compare home loans from different lenders on this page.

Your credit score is a numerical representation of how creditworthy you’re perceived to be, and it’s used by lenders to take an educated guess about how likely you are to repay your debt. Your score is calculated using several factors, including:

• your debt and bill payment history
• how much you’ve used credit products in the past
• credit products you’ve applied for
• the length of your credit history.

Each application you make for credit, including a home loan, can have an impact on your credit score. Importantly, if you are declined for a fixed rate home loan, this can negatively impact your credit score, which could make it more difficult to get approval in the future.
In addition, if you miss payments or make them late on your home loan, this can also have a negative impact on your credit score. Late or missed payments can indicate that you’re struggling to repay your debts, which could result in you being a higher risk to lenders.

If you're considering a fixed rate home loan, here's a step-by-step guide to the application process:

• Research and compare different loan options. Take the time to research and compare different fixed rate home loan options available in the market. Look for loans that suit your specific financial circumstances and your long-term goals.
• Contact a mortgage broker. This step is optional, but a mortgage broker can help you navigate the loan application process and find a suitable loan option for you. They can also help you with the paperwork and provide guidance on the loan application process.
• Gather your required documentation. Before applying, you'll need to have a number of documents ready. Your lender or mortgage broker will tell you what they need, but it will usually include proof of income, assets and liabilities, identification, and details of your current employment and financial history.
• Submit your loan application. Once you have all the necessary documentation and have chosen the right loan option, it's time to submit your application. You can do this either through your mortgage broker or directly with the lender.
• Wait for approval. After submitting your application, it will take a few days for the lender to process it and approve it, then they’ll be in touch to let you know the outcome.
• Sign the loan contract. Once your application has been approved, you'll need to sign a loan contract and agree to the terms and conditions of the loan.
• Complete the settlement process. The final step in the process is to complete the settlement process, which, if it is for a house purchase, involves transferring the funds from the lender to the seller, and transferring ownership of the property to you.