Fixed Rate Loan
A home loan where the interest rate is locked in for a set period, typically between one and five years.
In detail
Fixed rate loans give borrowers certainty of repayment during the fixed period. The rate does not change in response to Reserve Bank cash rate movements or lender pricing changes. Most Australian lenders offer fixed terms between one and five years, with a few lenders offering seven or ten year options.
Fixed rate loans usually restrict extra repayments beyond a set annual cap, often $10,000 to $30,000 per year. They may not allow offset accounts or free redraw during the fixed period. Breaking a fixed rate loan early triggers a break cost calculation based on the movement in wholesale swap rates, which can be significant if rates have fallen since the loan was fixed.
Why it matters for brokers
Clients who fix need to understand the trade off between certainty and flexibility. Brokers should explain break costs, extra repayment caps, and the risk of being locked in if rates fall before the fixed period ends.
Example in practice
A client fixes $500,000 at 5.99 per cent for three years. Eighteen months later the client wants to sell and repay the loan. Swap rates have fallen by 0.8 per cent since the loan was fixed, triggering an estimated break cost of around $12,000 which the client must pay in addition to the loan balance.
Related terms
Variable Rate Loan
A home loan where the interest rate moves up or down over time in response to market conditions and lender pricing decisions.
Split Loan
A home loan divided into two or more portions with different rate types or terms, most commonly part fixed and part variable.
Comparison Rate
A rate that combines the advertised interest rate with most standard fees to give borrowers a clearer picture of the true cost of a loan.
Principal and Interest (P&I)
A loan repayment structure where each instalment reduces both the loan balance and the accrued interest.
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