A fixed rate locks your interest rate for a set period, so your repayment stays the same until that period ends. If you work with data, you will want to see the inputs and the trade-offs, so this article lays them out in order.
What Is a Fixed Rate Home Loan Term?
A fixed rate term is the length of time your interest rate stays the same, and lenders commonly offer terms from one to five years. When the term ends, the loan moves to a variable rate unless you choose a new fixed term or refinance.
The fixed term is separate from the loan term. A loan might run for 30 years, with only the first three years fixed. Think of the fixed period as one setting inside a longer loan.
How Fixed Rate Repayments Are Calculated
Your repayment depends on three inputs: the loan amount, the interest rate and the time left to repay. At an illustrative rate of 6.75% p.a., a $600,000 loan over 30 years on principal and interest costs about $3,891 a month.
That rate is an example only and your actual rate will depend on your lender and deposit size. Change one input and the result moves. A lower loan amount, a longer term or a different rate each gives a different figure. A repayment calculator lets you test these side by side before you speak to anyone.
If you want to see how rate choices affect your own numbers, our page on getting a lower interest rate covers how discounts are negotiated.
Fixed vs Variable: The Trade-Off in Plain Terms
A fixed rate gives you certainty, while a variable rate gives you flexibility. With a fixed rate, your repayment cannot rise during the term. It also will not fall if the market rate drops.
Variable loans usually allow extra repayments and often offer an offset account. Fixed loans often limit extra repayments, and some do not offer offset at all. Features differ between lenders, so check the product disclosure for the loan you are considering.
The main cost of fixing is lost flexibility. The main risk is that you are locked in at a rate that later looks high.
What Happens if You Leave a Fixed Rate Early?
If you repay or refinance a fixed loan before the term ends, your lender may charge break costs. These depend on the loan amount, how long is left on the term and how rates have moved since you fixed.
Break costs can be large, and they can be zero. Your lender can give you a figure, and you should ask for it before you commit. If you expect to sell, refinance or restructure within the term, a shorter fixed period reduces this risk.
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Split Rate Loans: Fixing Part, Leaving Part Variable
A split rate loan divides your loan into a fixed portion and a variable portion. It gives you some certainty and some flexibility, but it is a compromise on both.
Consider a data analyst borrowing $600,000 who wants a steady repayment on most of the loan, but also wants to put a bonus into an offset account. They fix $400,000 and leave $200,000 variable with a linked offset. The fixed part holds its repayment for the term. Each bonus paid into the offset reduces the interest charged on the variable part only. The trade-off is that the $400,000 fixed portion cannot benefit from the offset in the same way, and that part could carry break costs if they refinance early. The outcome is a repayment they can budget around, with room to use extra cash on the portion that allows it.
If your pay includes bonuses or share vesting, our guide on using RSUs and bonuses as genuine savings is worth reading alongside this.
Should You Fix Before or After Pre-Approval?
Get pre-approval first, because it tells you how much you can borrow before you pick a structure. Pre-approval is not a rate lock. Unless you take up a rate lock, usually for a fee and for a limited period such as 90 days, the fixed rate is generally the rate on offer when the loan settles or is drawn down.
Ask each lender when its fixed rate is set and what a rate lock costs. Our page on getting loan pre-approval explains the process, and the borrowing capacity page shows what lenders look at.
Planning for the End of Your Fixed Term
When a fixed term ends, you can usually fix again, move to variable or refinance to another lender. Check your loan contract for the fixed term end date and mark it in your calendar now.
The rate you roll onto may be higher than what a new customer is offered, so compare before you accept it. Our fixed rate expiry page explains your options, and a loan health check can show how your current loan compares.
Which Fixed Term Suits Your Situation?
The right term depends on how long you are confident your circumstances will stay the same. If you plan to stay in the loan, a longer fixed term suits a tight budget. If you might sell, refinance or receive a large lump sum, a shorter term or a split loan keeps more options open.
A broker can compare fixed rate products across lenders, and take your income pattern into account. Fixed rates change often, so ask for current figures when you speak to us.
Call one of our team or book an appointment at a time that works for you, and we will run your numbers with you.
Frequently Asked Questions
How long can a home loan be fixed for?
Lenders commonly offer fixed terms from one to five years. After the term ends, the loan usually reverts to a variable rate unless you fix again or refinance.
What are break costs on a fixed rate loan?
Break costs may apply if you repay or refinance before the fixed term ends. They depend on the loan amount, the time left and how rates have moved, so ask your lender for a figure before you commit.
Can I split my home loan between fixed and variable?
Yes, many lenders offer split loans. You get a steady repayment on the fixed portion and more flexibility on the variable portion, but the fixed part may have limits on extra repayments and break costs.
Does pre-approval lock in my fixed rate?
No. Pre-approval shows how much you may be able to borrow. Unless you take up a rate lock, usually for a fee and a limited period, the fixed rate is generally the one on offer when the loan settles or is drawn down, so ask each lender when its rate is set.
