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With the anticipated changes to the cash rate and the shifting loan rates and deals from the big four banks, the age-old question—should I fix my home loan?—is becoming harder to answer.
Fixed-rate home loans offer security and predictability, but they aren’t always the right choice for everyone or every economic climate.
Whether you’re a first-time homebuyer, a property investor, or someone considering refinancing, this guide will explore the key factors to help you make the right choice.
What is a Fixed Rate Home Loan?
A fixed-rate home loan locks in your interest rate for a set period, typically ranging from 1 to 5 years. During this time, your repayments remain consistent, regardless of fluctuations in market interest rates. It’s a reliable option for those seeking to budget more effectively or who want stability amidst economic uncertainty.
Currently, interest rates are at their highest level since November 2011, following a prolonged period of rate hikes by the RBA. As a result, a larger-than-usual percentage of borrowers are opting for variable-rate loans. In fact, almost 98% of new home loans in Australia are variable, with only 2% of borrowers opting to fix their home loan, according to the ABS.
Historically, the proportion of fixed-rate loans was around 40% of all borrowers in Australia, but many of these have now rolled off into higher interest rates since 2022. Even so, as of December 2024, the average fixed-rate mortgage for owner-occupiers was about 0.6% lower than the average variable rate, which stands at 7.08%.
The fixed-rate home loan will still have a place in the mortgage market in 2025, so if you’re considering locking in your loan, it’s important to understand what makes it the right choice for you.
3 Reasons to Fix Your Home Loan
1. Predictable Repayments
One of the standout benefits of a fixed rate home loan is the assurance of consistent repayments. With a fixed rate home loan, you’ll know exactly how much your repayments will be for the duration of your fixed-term period. Whether you’re a first-time home buyer budgeting to the last dollar or a homeowner managing multiple financial commitments, fixed rates make it easier to plan and manage your finances.
2. Financial Stability During Uncertain Conditions
One of the key benefits of a fixed-rate home loan is the certainty it provides in your repayments. Economic conditions can shift quickly, but with a fixed rate you’ll know exactly how much you’ll pay each month for the duration of the fixed-term period. Whether you’re a first-time homebuyer carefully budgeting every dollar or a homeowner juggling multiple financial commitments, a fixed-rate loan makes it easier to plan and manage your finances.
3. Protection Against Rate Rises
Interest rate hikes can have a significant impact on your monthly repayments. Fixing your mortgage means your rate stays locked in—even if market rates rise suddenly. For refinancers and first-time home buyers, this can be a smart way to avoid unexpected expenses in the long term.
That said, the decision to lock in your rate shouldn’t be taken lightly. Fixed-rate loans also come with their own set of potential pitfalls.
Potential Drawbacks to Consider
While fixing your home loan has its benefits, it’s not suitable for everyone or every economic situation. Here are a few factors to bear in mind before committing:
Missed Opportunities if Rates Drop: If interest rates decline during your fixed-term period, you won’t benefit from reduced repayments.
Limited Flexibility: Fixed rate loans often come with restrictions, such as caps on additional repayments or exit fees for breaking the terms early.
Mixed Loan Options: Some homeowners prefer splitting their loan into fixed and variable portions for greater flexibility—you may want to weigh this against fixing your entire loan.
Should You Fix Your Home Loan?
The decision to fix your home loan ultimately comes down to your individual financial circumstances and goals. For those seeking budget predictability, protection against rising rates, or financial peace of mind—especially refinancers and first-time home buyers—choosing a fixed rate home loan can be a smart move.
However, if flexibility is your priority, or you expect rates to drop further, a variable or split loan option might be more appropriate.
Wondering whether a fixed home loan is the best option for you? Finding guidance tailored to your situation can make all the difference.
Speak to one of our expert mortgage brokers today to compare fixed, variable, and split-loan options.
