A fixed rate home loan is a loan where the interest rate is guaranteed to remain the same during an initial fixed rate term. Traditionally lenders offer terms between 1 and 5 years for fixed rates, however some lenders may offer terms up to 10 years. This type of loan gives you the certainty of knowing exactly what your monthly repayments will be and peace of mind knowing your repayments won’t rise during the fixed rate term. However, you won’t benefit if rates go down during the fixed term.
Advantages:
- Guaranteed rate during the fixed rate period, if interest rates rise your repayments wont
- You know exactly how much you will be spending on your mortgage each month, so budgeting for other expenses is far easier
Disadvantages:
- Reduced flexibility
- Extra repayments may incur a fee or be limited
- If interest rates drop your rate will remain the same
- There are usually exit fees and break costs if you wish to end the loan during the fixed rate period
Download our ‘Which Home Loan’ brochure (pdf) for more tips and general information.
