Fixed Loans
What is a fixed rate home loan?
A fixed rate home loan is a loan with the option to lock in or ‘fix’ your interest rate for a set period of time - typically between one and five years. However home loans with fixed periods as long as 10 years are available. During that set period, the interest rate will not change as it is fixed. This lies in contrast with variable rate home loans, which can ebb and flow as variable rates can be more acutely influenced by the Reserve Bank of Australia’s (RBA) cash rate, the Australian economy, and the home loan lender setting their own interest rates. Even though fixed interest rates remain constant during their fixed rate term, banks and mortgage lenders regularly reassess their home loan interest rates, including fixed rates for new customers. Between application and settlement, it’s possible for a fixed home loan product to increase its interest rate, prompting many to wonder whether ‘rate locking’ is a viable avenue.
Why choose a fixed-rate home loan?
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As the name implies, a fixed interest rate locks in the interest rate you pay for the duration of the term specified. A three-year fixed interest rate of 2.50% p.a., for example, will remain at that rate for three years regardless of economic pressures or the lender's needs before reverting to a standard variable rate.
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The most significant advantage of a fixed-rate loan is the certainty of cash flow. Your repayments remaining constant for a known period of time can make budgeting much easier because you know exactly how much your repayments will be. This makes fixed-rate home loans popular among investors and first-time buyers during the first two to three years of ownership.
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Of course, if interest rates fall, this can be a disadvantage. A fixed-rate home loan's locked nature means that any reductions in a lender's interest rates for any reason (such as recent changes in the cash rate) will not be passed on to you, causing you to pay hundreds, if not thousands, of dollars more in interest. Furthermore, the variable rate that the loan will revert to at the end of the fixed-rate period (known as the revert rate) can be significantly higher than some of the lower variable rates available, so you may want to consider refinancing to a different loan around this time.
The benefits of this home loan
Certainty of repayments
Flexible repayment options
Split your loan
Lock in a low rate and be confident that your minimum repayments will not change during the fixed term.
Select your own repayment schedule: weekly, fortnightly, or monthly.
Split your loan into variable and fixed portions to get the best of both worlds.
Pay your loan off sooner
Control from your pocket
Lock in your rate upfront
Make additional repayments of up to $20,000 without incurring any fees during the fixed rate term.
Using the NAB app, you can keep track of your home loan. You can track the progress of your home loan, estimate your property equity, and do other things.
Rate Lock protects you from any interest rate increases for 90 days by paying a Rate Lock fee while your home loan application is being processed.