Compare Fixed Rate Home Loans

May fixed rate home loans update

The expectation that the RBA will begin tightening monetary policy this year has seen lenders scrambling to revise their fixed rates, with 71 of the 90 lenders we track hiking rates last month alone. 

At the time of writing, the average 2-year rate in our database sits at 3.60% p.a. (up from 2.22% p.a. in September 2021), while the average 5-year fixed sits at 4.64% p.a. (up from 2.79% p.a. in September 2021).

Many of the fixed rate offers below the 2% mark have since disappeared. The only holdout is Unity Bank’s 1.84% p.a. (4.05% p.a. comparison rate*) offer, however this is only available to first home buyers. Among lenders we track, the current rate leaders (OO, P&I) are:

• 1-year: Police Bank | 2.29% p.a. (2.91% p.a. comparison rate*)

• 2-year: Orange Credit Union | 2.45% p.a. (3.87% p.a. comparison rate*)

• 3-year: Orange Credit Union | 2.99% p.a. (2.97% p.a. comparison rate*)

• 4-year: Southern Cross Credit Union | 3.69% p.a. (3.11% p.a. comparison rate*)

• 5-year: Australian Unity | 3.84% p.a. (3.35% p.a. comparison rate*)

Updated by: Niko Iliakis, home loans writer, 2 May, 2022.

Fixed home loan rates

To fix or not to fix? That is the question posed by many home buyers across Australia. To help you decide whether a fixed or variable interest rate is your borrowing match, we've compiled this quick guide that runs through the benefits of a fixed interest rate and the traps to watch out for. You can also use the above table to compare fixed rate home loans quickly and easily.

What do you need to know? 

A fixed home loan rate, as the name suggests, is an interest rate that is set for a fixed period of time. Most banks offer fixed rate terms of between one and five years, though some let you lock in a rate for as many as ten years. During this period you won’t be affected by any rate changes, meaning your repayments will stay the same and can budget accordingly.

At the end of the fixed period, borrowers will have the option to select another fixed term or switch to a variable rate loan. The revert rate - that is, the rate that the home loan will automatically revert to if no decision is made - is usually higher than the market rate, so be prepared to shop around at the end of the term or negotiate a better deal with your lender to avoid getting stung.

What are the advantages of a fixed rate loan?

1. Safeguard against rate hikes

Official interest rates might currently be at all-time lows, but they’re not going to stay that way forever. The RBA makes decisions to move the cash rate based on how the economy is faring, and banks sometimes make out-of-cycle decisions to hike their mortgage rates when profit margins are being squeezed. If either of those situations occur, having your rate locked in for a set period means you won’t be affected, and can continue to benefit from lower rates.

2. Increased certainty

Fixing your home loan means your repayments will stay the same, at least until the fixed period ends. This makes it easier to plan for other expenses, as you’ll know with certainty how much money you’ll have left over after each scheduled repayment. This can be particularly useful for borrowers who have just moved into their new home and are still dealing with moving costs or those who plan to renovate.

What are the disadvantages of a fixed rate loan?

1. You won’t benefit from rate cuts

Fixing your interest rate means it stays the same for the duration of the fixed term, regardless of whether official interest rates move up or down. This means that while you’ll be protected in the case of any rate hikes, you won’t see any benefit if rates go down. 

2. Limits on features

You might find that fixed rate loans aren’t as rich in features as the average variable rate loan. And even if you find one that comes with an offset account and the ability to make extra repayments, there might be fees or limits that can cut into the overall benefits offered. For example, your fixed loan might cap extra repayments at $10,000 per year, meaning you’ll incur penalty costs if you exceed this threshold.

3. Break fees

Exiting a fixed rate loan before the agreed date can be quite costly. So if you want to refinance to another loan or make significant adjustments to your current one, make sure you ask your lender to explain the fees involved and how they’re calculated.

How does a fixed rate home loan compare on features? 

There was a time when fixed rate home loans were light on features, such as offset accounts and the ability to make extra repayments. But many nowadays offer the same extras as variable home loans, albeit with more conditions and restrictions. We’ve detailed a few below.

• Extra repayments: With a fixed rate home loan you may be able to make extra repayments, however there will most likely be a limit to how much you can make each year or over the term of the loan.
• Redraw. If you can make extra repayments you may also have the ability to redraw this amount. A fee and minimum redraw amount will most likely apply.
• Offset account: Some fixed loans will have an offset loan facility, but unlike a variable rate home loan where you can offset 100% of the loan amount, you might only be able to offset a portion, such as 10-40% of the loan.
• Repayment flexibility: Just as with a variable rate home loan, most fixed loans will allow you to select the repayment frequency - weekly, fortnightly and monthly - that suits you.
• Loan-to-Value ratio: Fixed home loan rates have different LVR requirements to variable rate loans so while you might need an LVR of 80% for a variable rate loan you may only need a LVR of 90% for a fixed term loan. 
• Split loan: Many fixed rate loans will have the option of splitting a portion of the fixed loan with a variable rate. There may be some limits to how much you can split but it can mean that you get the benefits of rate certainty for the fixed portion of your loan and added flexibility on the variable.

What about price?

When the Reserve Bank of Australia cut interest rates and commenced its bond purchasing activities in March 2020, the majority of banks and lenders responded by cutting fixed rates and leaving variable rates unchanged. This shift saw fixed rates quickly overtake variable rates as the cheaper of the two. In fact, as of 3 June 2020, the average fixed rate among lenders we track sits a full percentage point lower than the average variable rate — 2.27% p.a. compared to 3.27% p.a.

Can you break a fixed rate loan early?

When you sign up for a home loan, your bank or lender funds the loan by borrowing money from wholesale money markets. And if you decide to fix your loan, the bank’s funding costs will also be fixed to hedge against any rate changes. For this reason, breaking your fixed contract early comes as a rather large inconvenience to your bank, as it’s still required to repay the loans it took out at a fixed rate until the end of the period. If your bank incurs a loss, it will pass the cost onto you in the form of a very hefty break fee. 

There are a few reasons why you might have to exit a fixed period early. These include deciding to sell your property, switching to a variable rate, refinancing to another lender, or paying off your loan in full. The size of the break fee will depend on a few factors, such as your current interest rate, your outstanding balance, and how much longer is left on your fixed rate term.

If you’ve decided that a fixed interest rate home loan is the right pick for you, then you’re going to have to start shopping around. Head on over to our Home Loan Interest Rates page for more information about comparing fixed rate home loans. 

JP Pelosi

Managing editor

Jean-Paul (JP) Pelosi is an experienced journalist and editor who has contributed to many of Australia's leading media outlets including The Guardian, News.com.au, Domain.com.au, Investment Magazine and ANZ's Bluenotes. He has also edited news and communications for large financial services companies such as CommBank, Suncorp, Allianz and Amex. He loves a well told story and applying his editorial experience to content that readers both care about and enjoy. JP heads up our writing team.