• Home loan terms and mortgage definitions

  • Fixed interest rate

    An interest rate set for an agreed term.

    Where the interest rate for a home loan is set for an agreed term Fixed interest rate loans offer more certainty than variable interest rate loans because the interest rate does not change for a specified period of time (usually between 1-5 years but even up to 10 years or more). At the expiry of the fixed rate period the interest rate generally reverts to a variable interest rate unless a further fixed rate period is selected. Fixed rate home loans have traditionally been less popular than standard variable rate loans because they were less flexible in terms of access to your money and the ability to make extra repayments. However, that’s recently changed and many fixed rate home loan products now permit extra repayments and may even include redraw facilities. These are some of the pros and cons of fixed interest rate loans.

    Repayments are set during the fixed term

    • This provides greater certainty over your home loan repayments.
    • Fixed interest rates are not affected by changing economic conditions and do not move up and down like variable interest rate loans.

    Provides more certainty for people on a strict budget

    • As payments are known, you can plan your lifestyle accordingly.
    • You have a greater ability to prepare an accurate monthly budget.
    • First home buyers and investors, in particular, may appreciate the increased certainty and security.

    Repayments don’t fall if rates fall

    • Where the interest rate is fixed, while the interest rate can be lower during periods of high interest rates and it can be higher during low interest rate periods.
    • To come out ahead, you need the average variable interest rate over the term to be higher than the fixed interest rate you’re paying for that period. You should also take into account any applicable fees and charges.

    Less flexibility to make additional payments

    • Lenders may charge you a fee for making early repayments where you have a fixed interest rate loan, so if your lender charges such a fee and you wish to make additional repayments you either need to wear this additional fee or wait until the expiry of the fixed rate term.
    • If your circumstances change or you feel another loan option is more suitable, you may still have the option to switch to an alternative loan, although fees and charges may apply. These can be significant so it is important to check with your lender.

    To find out whether the additional security and certainty of a fixed interest rate is right for you, or learn about the RAMS Fixed Rate home loan. Fees, conditions, limitations and lending criteria apply. This information is of a general nature only and is not to be relied upon as being appropriate or suitable for your particular circumstances.