Fixed Rate Home Loans

Fixing your home loan rate can be a smart option if you need to ensure that you stick to your household budget. But what happens when you choose a fixed rate home loan? What does it actually mean?


What is a Fixed Rate Home Loan?


As the name suggests, this is a home loan product that’s interest rate is set for a fixed amount of time, anywhere from 12 months, to 3 years to 10 years. During this fixed period, your mortgage repayments are locked in at a set price, which makes budgeting easier and provides peace of mind because you don’t have to worry about unexpected interest rate rises impacting your budget.

Lenders, typically banks, will offer fixed rate home loans with varying terms, with the most popular options being one to three years. A fixed rate home loan can attract a slightly higher interest rate compared to a variable rate loan, so if you fix your home loan for a longer period of time, you could end up paying more interest, particularly if interest rates remain the same or go down. However, if interest rates rise, then you will come out on top.

As the end of the fixed period term approaches, the borrower will have the option to choose another fixed term or switch to another type of home loan. It’s important that you make a decision about what type of loan you’ll switch to prior to the term finish date, otherwise the fixed rate will switch to what’s called a ‘revert rate’ which is often higher than the market rate, meaning you will start paying more.

You can avoid this happening by being prepared and reviewing your mortgage every 12 months. Chat to an ACF mortgage broker if you haven’t reviewed your mortgage recently.


Fixed Rate Mortgage Features


Until recently, the features available with a fixed rate home loan were few and far between. Now there are different options available, depending on the lender and type of mortgage. And while this is great, there are some restrictions associated with a fixed rate home loan that you should be aware of before you make the decision to go this route.

  • Extra Repayments: depending on the type of mortgage product and lender, you might be able to make extra payments against your home loan, however these will normally be capped or limited to a certain amount each year. Make sure you read the fine print to ensure you understand these limitations.
  • Loan-to-Value Ratio: because of the nature of a fixed mortgage, the LVR requirements are different, so if you’re a first home buyer, you might find that you need to come up with a 20% deposit as a minimum, rather than only 10% if it were variable.
  • Offset Account: some lenders will allow you to have an offset facility, but this won’t be for the full 100% of the loan, it will be limited to a portion, such as 10-40%.
  • Repayment Flexibility: this is one of the best features of a fixed rate mortgage, being able to choose the frequency of your repayments. You will have the option to choose weekly, fortnightly and monthly repayment options.

Compare Fixed Rate Home Loans


What Types of Fixed Rate Home Loans Are Available?


There is a range of options available to you when you choose a fixed rate home loan. The ones listed below are aimed at the standard borrower. If you are looking for a low doc or bad credit home loan, these are also available, but higher fees and rates are likely to apply, which is why you should chat to a mortgage broker first before taking any serious steps towards your home loan decision.

  • Basic home loan: This is the ‘no frills’ version of a home loan and has minimal features, which means you won’t be able to access things like an offset account or redraw facility. But the benefit of this is that lenders can then offer you lower rates and in some instances, lower their fees.
  • Packaged home loan: This type of mortgage involves you moving all of your banking needs to your fixed rate home loan provider. We’re talking credit cards, savings accounts, insurance and transaction accounts. If you choose this option, you’ll generally receive fee waivers, discounts and bonus interest on certain accounts. You might even get a discounted interest rate. One major drawback is that you’ll likely be required to pay an annual fee though.
  • All Feature loan: This type of home loan fits in between the two above. You’ll be offered a number of features like offset accounts and redraw facilities as well as the option to make regular additional repayments. There are also a number of fees associated with this type of loan, and can include application, settlement, legal and valuation fees.

The best way to decide what type of fixed mortgage option is best for you is to compare the options, and as you’re comparing home loans, it’s important that you look at the following aspects:

  1. Interest rate being offered. While this isn’t the only thing to take into consideration, it will be the starting point and have a large impact on how much your mortgage repayments will be. The interest rate doesn’t include upfront fees or ongoing account fees, so make sure you review the comparison rate as well for full disclosure.
  2. Is the ability to make additional repayments an option? While this won’t matter to everyone, it is important if you now that you’re going to get a pay rise in the next 12 months or have investment income that you’d like to use to reduce your mortgage with. Make sure the loan allows you to do this if it’s important.
  3. Look at the upfront fees. Things like establishment, valuation and legal costs will differ per lender, so it’s important that you understand what these are.
  4. What features are available? Each lender is going to provide different features, so make sure you note down the ones that are important for you and look for lenders that offer them.

The final decision will come down to what lender can meet all of your criteria.

Now that you understand what a fixed rate home loan is, how they work and what features and fees are associated with the type of mortgages available, you can make an informed decision about your next steps.

Let the team at Australian Credit and Finance help you find the best fixed rate loan today.


Talk to our friendly team of Australian Credit and Finance mortgage experts who can help you navigate your way through the process of buying a home, investing in property or refinancing your home loan. Call us today on 1300 735 557 to discuss your fixed rate home loan options.