Fixed Rate Home Loan
A Fixed Rate Home Loan is a home loan that has an interest rate that is fixed for an agreed period, usually between 1 and 5 years. During this fixed period your interest rate and home loan repayments stay the same, which provides a degree of financial certainty and can make budgeting to make the repayments easier as each and every month for the fix period you will know what the repayment amount is.
Fixed Rate Home Loans are offered by many of the major lenders with the option to fix your interest rate for up to 10 years, though the most popular period with Australian borrowers is 3 years.
When considering the option of a Fixed Rate Home Loan it is important to include research on interest rate rise and falls, in conjunction with an assessment of the features offered across fixed rate home loans.
In terms of interest rates if you opt to fix your rate before an interest rate increase then you could enjoy lower fixed rates while the variable rates rise. Conversely, if the interest rate falls during your fixed rate period your rate will remain at the fixed level and so you will miss out on any benefit from this rate fall, and may end up paying interest at a higher rate than those on a variable rate home loan.
The features included with home loans differ between lenders and loan types. Historically Variable Rate Home Loans have always had more features and flexibility than fixed rate home loans though recently a number of Fixed Rate Home Loans have been launched that include features and flexibility that can help you pay off your home loan faster, such as extra repayments and redraw facilities. Be sure to check the terms and conditions of these features, as they do tend to include restrictions and come at cost, with the lenders charging hefty fees to access them.
At the end of your fixed period, you have the choice to either commit to a further fixed rate period with a renegotiated fixed rate, switch over to a Variable Rate Home Loan or refinance your loan with another lender.