
What are fixed rate home loans?
Fixed rate home loans in Australia are a type of home loan product for borrowers where the lender agrees not to change the interest rate for a set period—typically one to five years.
Fixed rate home loans play a significant role in the Australian home loan market. During the Covid-19 pandemic 40% of home loans in Australia were fixed, when normally the proportion is about 20%.
Borrowers who have fixed rate home loans are protected from interest rate movements so should not see repayments change when a lender changes interest rates. Unlike variable rate borrowers.
Fixed rates are a separate home loan product to a variable home loan, they have their own set of interest rates assigned to them.
Fixed home loans have benefits and drawbacks and so are not suited to everyone. They can offer certainty around repayments but are generally a less flexible home loan product.
How does a fixed rate home loan work?
Fixed loans are a product choice offered by many lenders. You can often choose a fixed rate for some, or all your home loan. Lenders typically provide fixed rate home loans for most lending scenarios—including fixed rate investment and owner-occupied purposes.
Fixed rates, much like variable rates, are not a one size fits all. There are several factors that can influence the fixed loan interest rate, like loan to value ratio (LVR) and loan amount.
Once a fixed loan has commenced, the interest rate should not change during agreed the fixed period—unless the borrower initiates a change.
Consider a fixed rate a loan product choice that sets your interest rate in stone, typically for a few years, within the confines of an overall home loan term.
This is how a loan term might work for a fixed loan. If you chose a three-year fixed rate term at the start of a new 30 year home loan, at the end of the fixed rate period you should still have about 27 years remaining on your home loan.
Lenders usually have a rate card (like a restaurant has a menu) that lists the interest rates available for different home loan products. This should include any fixed rate options. Example of product names could be:
- 1yr fixed rate
- 3yr fixed rate
- Basic variable rate
- Standard variable rate
Fixed rates can be quite different to the variable rates—often higher.
Below I cover reasons to consider why, and why not, borrowers take out a fixed rate home loan.
Why get a fixed rate home loan?
Here are some common reasons borrowers take out a fixed rate home loan:
Protection from interest rate rises
Locking in the interest rate means the rate cannot move higher during the fixed rate period.
Certainty of repayments
Fixed rates come with a minimum monthly repayment that will not change during the time that the home loan is fixed.
Peace of mind
Fixed rates offer borrowers the comfort of tuning out all the rate noise and news. Even if the fixed rate is significantly higher than the variable rate alternative, these borrowers usually value “peace of mind” and so are content with paying a premium interest rate.
Predictable budgeting
A home loan is a significant expenses and it is not uncommon to see households require over 30% of income to meet repayments for a home loan. This high exposure to home loan debt, and any interest rate movements is a big reason for borrowers choosing fixed loans.
Long-term planning
Fixed rate home loans are typically for years and not months. So, if borrowers have long term planning needs, like managing the repayments for an investment property, fixed rates have their appeal.
What is the downside of a fixed rate home loan?
So much about a fixed loan makes sense but there are some drawbacks to consider. Choosing a fixed rate home loan is often a trade-off between certainty and flexibility. Here are some of them.
Miss out on rate reductions
Borrowers miss out on any rate reductions while the rate is fixed.
Less flexibility – Redraw
Redraw is a common way of accessing any funds paid over the minimum required repayments. Redraw is a feature not all lenders allow during a fixed rate period.
Less flexibility – Offset
Offset accounts are a popular way of using any surplus savings to reduce home loan interest. Offset options for fixed rate home loans are limited.
Less flexibility – Overpayments
Lenders can limit the extent to which a home loan is overpaid. Lenders normally define an allowable amount of overpayment during the fixed period. Any overpayments beyond this could incur partial break costs.
Break Costs
The costs to pay out and close (or significantly reduce) a fixed loan are known as break costs. These can be significant.

Fixed vs variable home loan – Comparison
When considering the features of a fixed home loan, it is usually the common variable home loan features they are compared with.
A fixed loan generally offers everything a variable loan cannot, and vice versa. See the table below for a summary of differences.

There will be exceptions to the above comparison. For example some Australian lenders offer partial and 100% offset accounts for fixed loans. This is where a mortgage broker discussion could uncover a product and lender suited to your circumstances.
Fixed vs variable examples – Graphs
I find most pros and cons lists for fixed loans cover general features and do not attempt to include actual figures—for good reason. There are too many permutations.
But consider the below examples that show how a fixed rate could work for or against a borrower—from an interest rate (and cost) perspective.
The below graphs compare examples of two home loan options. One is a three-year fixed rate at 6%, whereas the other is variable, starting out at 5%.
Note – We are ignoring many variables such as loan balances, loan terms when discussing each fixed vs variable example. All rates are for illustration and future rate movements are examples. No one can tell you where they are headed. It is your choice so make it an informed one. No one can predict which way the variable will go so I have put together some scenarios, along with commentary. All graphs look backwards with 20:20 hindsight so treat these as educational only.

The above example shows an interest rate environment in which variable rates rise steeply after the fixed rate has been locked in at 6%. Initially the borrower is paying more than if they had chosen a variable rate.
However, early in the fixed rate period the variable interest rate surpasses the fixed rate and continues to rise. This example shows how a borrower, while initially paying an interest premium, could end up potentially saving in interest costs over the three years period.

This example shows a rising variable interest rate environment that is fairly even over the three-year fixed term.
The first half of the fixed rate period sees the borrower on a higher rate. However, the second half sees them saving compared to where variable rates get to. Given they borrower seems to have paid more in the first 18 months and saved in the following 18mths the end position could be considered more or less even.

Interest rates can rise, but never reach the fixed rate, as this example shows. As the rate never surpasses the interest rate the borrower locked in for, financially the borrower could pay a premium over the fixed rate period.

This graph is very clear. The borrower fixed at a rate higher than the available variable rate. It shows the variable rate unchanged over the course of the three-year fixed period. In this case the borrower will likely pay more interest.

This example shows the variable rate decreasing from the moment the borrower fixed. This happened to me—a couple of times. Not being part of the rate decreases bothered me, but my reasons for fixing were to protect a large loan from rate increases that could have forced lifestyle and other financial changes upon me. That was something I was willing to pay a premium to protect.
These graphs offer a visual illustration of how variable rates can move around a stable, fixed rate product. These graphs do no articulate how fixed rates can remove anxiety over repayments or help with protecting an investment position. Something to consider in your home loan discussions.
Fixed vs variable – Can I have both?
Yes. Many Australian lenders offer the option to have a combination of fixed and variable home loans. This is referred to as a split home loan.
Split home loan is the term used to describe a lending arrangement that uses a combination of two or more loans, typically fixed and variable. The limits of all loans make up the required lending amount the borrower needs.
A typical split home loan sees a borrow choose two loans, a variable and a fixed rate home loan. The borrower decides the proportion of fixed vs variable home loan amounts depending on the balance of loan features and risk exposure they are comfortable with.
Use a $500,000 home loan as an example. A borrower who is very anxious about rising rates with some capacity to overpay on loan repayments might fix $400,000 for a period and leave $100,000 as variable.
Conversely, you could have a borrower less anxious about interest rates rising but still likes the idea of fixing to minimising exposure to rates movement. They are also motivated to pay extra off their home loan. In this case they might consider 50:50 as a fixed to variable split home loan.
Working through different overpayment scenarios can help borrowers decide on the ideal split home loan proportion for their situation.
A split home loan allows a borrower to have their cake and eat it too. Split loans offer the flexibility in the variable rate product combined with the repayment certainty of a fixed loan.
There are pros and cons to a split home loan which I explore further here.
Which types of borrowers choose a fixed rate?
Based on my mortgage broker experience in arranging home loans for clients, I have put together a list of borrower groups that I found suited to fixed rate home loans. While there can be scenario-specific circumstances that influence a product choice, there tends to be certain borrower-types suited to fixed rates.
First time buyers and fixed rate loans
Fixed home loans can suit first time buyers given it is likely to be the largest debt these borrowers have ever had. A fixed home loan can suit first time buyers who need to prioritise repayment certainty, planning and budgeting.
One key area of concern I found from first time buyers is whether they can maintain the lifestyle they have become accustomed too. Because fixed home loans effectively lock in a repayment that will not change during the fixed period, it provides a high level of comfort for this borrowers group.
Investors and fixed rates
A fixed rate investment loan is typically for investment property, but can also be for other investments, like investing in shares or exchange traded funds (EFTs).
Fixed rate investment home loans can help investors with planning and forecasting exercises—crunching the numbers.
Much of the attraction of property and share investments is in the predictability of the returns. In the case of an investment property strategy, there is plenty of data that can indicate the likely rent (income) to expect.
While investors might value forecasting returns, they might also want to control expenses associated with their investment. Fixed rate investment loans offer investors repayments that will not change month to month.
Another characteristic many investors share is the longer term nature of their investments. Given fixed rates are over years and not months, this can align nicely with an investment property holding strategy.
Fixed rate investment loans are also commonly available for investors who wish to adopt interest only repayments, a strategy popular among investors.
Borrowers near maximum capacity
As much as buyers start their home buying journey intending not to stretch themselves, many end up borrowing at or near their maximum borrowing capacity.
APRA reported a period in 2021 where almost a quarter of all new home loans demonstrated a debt-to-income ratio of six. That’s right—six. This means all borrower debt (credit card, home loan, student debt, etc) as a proportion of household income in a home loan application was six.
In my mortgage broking experience, borrowers at or near borrowing capacity needed to consider all options they to continue to meet repayments if interest rates moved higher.
Some options borrowers would explore were:
- Is there scope to earn more in their current job?
It could be an increase in hours or perhaps they have a job with performance related incentives—like commission. - Do they have other assets to sell?
Like another property or shares that can help reduce their debt levels.
Unless there is scope to deal with significant interest rate rises, borrowers could consider a fixed rate home loans as a tactic to remove exposure to potential increases in repayments.
Borrowers uncomfortable with debt
I remember seeing a client who borrowed less than double his annual salary. He had great savings, stable employment and all things considered, was the perfect home loan applicant.
The thing that surprised me was his focus on a fixed rate mortgage. He was not your typical fixed rate borrower as he has plenty of scope to pay of his loan very quickly, even if interest rates rose dramatically.
He really wanted a fixed rate.
Why?
As it turns out, a previous relationship had hit him hard, and finances were central to the relationship breakdown. So, while his financial position looked strong on paper, he was very anxious about taking on any debt, no matter the size.
He ended up opting for a split home loan.
Fixed rate home loans need to be considered on every level – financial strategy as well as borrower comfort. You may be as objective as you like, but sometimes you cannot put a price on sleeping well at night.

How do you get a fixed rate loan?
Most Australian lenders offer fixed rate home loans, although eligibility may still depend on the loan characteristics—like loan purpose and LVR.
Fixed rate home loans are often used as a promotional tool by lenders to attract new borrowers. So, a new home loan application is one way to access a fixed rate home loan.
What may come as a surprise to some, is that existing borrowers can often access fixed rate home loans while remaining at their current lender. In many cases it can be done on a banking app or over the phone.
In most cases, existing borrowers do not need to submit a new application to access a fixed rate unless they are asking to increase their loan amount at the same time. It will of course be subject to a discussion around suitability, eligibility and fees.
What happens when the fixed rate ends?
Two words—revert rate.
As is often in home loan world, it does usually not pay to be complacent.
Fixed rates are only for a set period of time within the life of a loan—they eventually end. In most instances borrowers will have a couple of options at the end of the fixed period:
Do nothing and let the fixed rate rollover to a variable rate. The interest rate that it rolls over to when the fixed period finishes is known as the revert rate.
or
Choose another product the loan can change to after the fixed rate ends. It could be another fixed rate.
The good?
Borrowers usually do not need to do anything at the end of the fixed rate period and as their fixed rate home loan should automatically move onto a variable rate home loan. This should be outlined in any loan paperwork.
The potential problem?
The new interest rate, or revert rate, is often a relatively high rate when compared to similar variable loans rates.
A potential solution?
Borrowers should be proactive in having interest rate conversations around the time their fixed rate is expiring. They can contact the lender directly or the mortgage broker to discuss how best to keep their revert rate as low as possible.
If these conversations do not get the result you need then you can consider a refinance home loan if it improves your situation.
Fixed rate terms to understand
I often explain to borrowers that fixed rate home loans are like a smaller product agreement designed to take place within the overall home loan term.
Fixed rates have their own set of banking language to understand. I outline a couple of key terms here.
Rate lock
Rate lock is the term commonly used to describe the process lenders use to guarantee a fixed rate nominated by borrowers in their application will be the same rate they get at loan settlement.
In my mortgage broking experience, most borrowers I helped were surprised to learn that fixed interest rates can change any time in the weeks (or months) between submitting a home loan application to the loan commencing.
The point to highlight here is – choosing a fixed rate product is choosing the product and not the rate. For example, you might like the idea of an advertised three-year fixed rate of, say 6%. In practice, a home loan application will request the three-year fixed rate home loan product—not the rate.
Confused?
In this example, unless you have a rate lock option, you will get the three-year fixed rate home loan interest rate that applies on the day the loan commences. It could remain at 6%, or it could have moved higher or lower.
For a home loan product designed to provide certainty this is perhaps the most uncertain part of the fixed rate home loan process.
Essentially, lenders are not going to hold the fixed rate open for borrowers indefinitely. Due to the nature of how banks fund these loans, they need to closely monitor the amount of fixed home loans they are settling.
Lenders are committing to borrowers for a set number of years, and will not be able to adjust their rates once the loan has been funded, so they need to watch the flow of business in return.
While banks may differ in how they process a fixed rate home loan request, the rate lock process usually involves payment of a fee (say $500 to $750 as an example) from the borrower at the time of application.
In return the lender will “guarantee” the interest rate for the fixed home loan in the application is the interest rate their loan gets at settlement. There is usually a timeframe of about 90 days where the lender will hold the rate for the borrower.
If rate lock is not chosen, then borrowers will typically get the advertised rate for the product when the loan settles—it could be the same, higher, or lower.
Break costs
Break costs are also known as Early Repayment Adjustments (ERA). Lending money out on fixed rate terms requires assurances around the amount of income (interest) a lender is expected to receive. So, they pencil in a set amount of profit from fixed loans they advance.
If for whatever reason the lender does not receive the interest they have allowed for, they reserve the right to impose break costs on the borrower.
Typical ways borrowers might incur these break costs are:
- Sell a property and pay down the loan. Often unexpected like in a relationship breakdown.
- Overpay beyond what the bank allows for during a fixed rate term.
- Change from fixed to variable – essentially end the fixed rate agreement early.
A common misconception is that break costs can be estimated at the outset—they can’t. It has much to do with the funding costs for lenders at two different points in time: when they lent money to you compared to when a fixed loan is broken. The difference contributes to the break cost amount.
Break costs typically range from nominal to tens of thousands of dollars.
FAQs
How often do fixed rates change?
Lenders can change interest rates as often as they like.
Fixed rates will often change at different times to the variable interest rates.
Australian borrowers have been conditioned to tune into central interest rate changes by the Reserve Bank of Australia (RBA). This is because lenders usually respond to RBA rate changes by changing to their own rates—commonly the variable rate.
This is a cycle we might have become accustomed to, but lenders are allowed to change their interest rates whenever they want. A lender might hike their interest rates due to cost pressures. Alternatively, they may reduce their rates to make their products more appealing to a segment of the home loan market.
What is the difference between fixed rate and interest only?
I find borrowers intermingle the terms fixed rate and interest only in home loan conversations. They are very different things.
A fixed rate is a type of home loan product. It sets a rate that won’t change for a period.
Interest only on the other hand is a repayment type.
So as a borrower you will nominate a product. Perhaps a fixed rate or variable home loan product.
Another decision could be to explore the most suitable repayment type for your scenario—typically a choice between interest only or principal and interest.
How much can you overpay on a fixed rate home loan?
Lender can vary in how their treatment of home loan overpayments – which are loan payments in excess of the minimum monthly repayment amount.
Lenders usually offer some scope to overpay a fixed rate loan before incurring any penalties like break costs.
If overpayments on a fixed loan are allowable, they are commonly expressed as a set amount. Examples of overpayment limits could be a lender allowing $10,000 in extra repayments per year or perhaps an amount of $30,000 allowed anytime during the fixed rate term.
Can you redraw on a fixed home loan?
Some lenders allow it and some don’t. It is a good question to ask a mortgage broker when considering if a fixed loan is for you.
Redraw is home loan feature that can give a borrower flexibility in withdrawing any funds paid in advance on their home loan. Given the flexible nature of redraw, it is more commonly seen as a variable home loan feature.
Some lenders allow redraw on a fixed loan:
This allows borrowers to reduce interest costs on their home loan resulting from allowable advanced payments, yet still have access to redraw the advanced payments if they need to. These lenders will typically still limit the degree to which a borrower may pay ahead on their fixed home loan.
When a lender does not allow redraw during the fixed term:
Any overpayments during the fixed period are not accessible until the end of the fixed term, when the loan usually reverts to variable. These borrowers may still benefit from reduced interest costs by overpaying more than the minimal repayment (withing allowable limits). Provided they do not want access to redraw during the fixed term the product may still suit their circumstances.
Can you have an offset account with a fixed loan?
Yes—but not a feature typically offered by the bigger Australian lenders.
If you google “fixed and offset” many of the big Australian lenders say it is not possible—but it can be. Just not with them.
For a borrower to choose a lender who offers a fixed rate home loans with offset account a couple of things need to happen:
- The product is a match for the borrower’s circumstances.
- The borrowers are a match for the lender.
And one more thing, even if the lender offers a fixed rate home loan with offset, it might be in name only. Sometimes only a fraction of the balance (not 100%) offsets the home loan interest.
This can be equal parts opportunity and minefield so get a professional on your side to help determine what suits your situation.
Is a fixed loan right for me?
Choosing a fixed rate home loan should not be something you choose from a home loan product menu because it “feels right” at the time.
It takes a little time and effort to weigh up if a fixed rate suits your circumstances.
A discussion with a lending professional should dig into what you need out of a home loan. Once known, the product choices can become clearer.
I strongly advise having a conversation with a mortgage broker or your lender before choosing a fixed rate home loan so you can weigh up any pros and cons before making your decision.
Final word
Fixed rate home loans can play a big role for borrowers wanting certainty and control over home loan repayments.
Fixed rates can be equally, if not more important, for borrower who want to reduce home loan-related worries.
There are borrower-types better suited to fixed rates than others, like some first-time buyers.
For borrowers who want to inject some flexibility into a fixed rate home loan structure, we explored split home loans and touched on fixed loans with offsets.
Fixed rates offer plenty of benefits but do not suit everyone. There are implications to consider around interest rates, break costs and redraw.
Like most things home loan related, getting the right advice can make all the difference when it comes to choosing the right home loan for your situation.