Key takeaways:
Fixed-rate home loans offer repayment certainty. Your interest rate stays unchanged for an agreed period, typically one to five years.
Fixed rates protect against interest rate rises, but not cuts. Your repayments generally remain stable even if market rates change.
Fixed loans may have less flexibility. Extra repayment limits, restricted features and potential break costs can apply.
Your repayments may change when your fixed term ends. Your loan generally reverts to your lender's variable rate unless you arrange otherwise.
The right rate structure depends on your circumstances. Compare fixed, variable and split rate loans based on rates, fees, features and plans.
A fixed-rate home loan locks in your interest rate for a set period, typically one to five years, keeping repayments predictable even if market interest rates rise.
While fixing can make budgeting easier, you won't benefit from rate cuts during the fixed term, and changing your loan may incur fees.
This guide explains how fixed-rate home loans work, their benefits and drawbacks, and what to consider before fixing your interest rate.
How does a fixed-rate home loan work?
A fixed-rate home loan locks in your interest rate for a set period, typically one to five years, within the remaining loan term, which is often 30 years but depends on the lender, product and borrower’s circumstances.
Your repayments generally stay the same during this period, as long as your loan arrangements don't change.
However, the fixed rate advertised when you apply may differ from the rate at settlement if your lender changes its rates before your loan is finalised.
What is a rate lock on a fixed-rate home loan?
A rate lock lets you secure a fixed interest rate before settlement, protecting you against potential rate increases.
Without it, your lender's applicable fixed rate at settlement will generally apply. Some lenders charge a rate lock fee, and conditions vary.
It's worth weighing the cost against the risk of rates rising before settlement, particularly if settlement is several months away.
What are the pros and cons of a fixed-rate home loan?
Fixed-rate home loans offer predictable repayments but less flexibility than many variable-rate loans. Here's how the benefits and drawbacks compare.
Potential pros | Potential cons |
|---|---|
Predictable repayments: Regular repayments generally stay consistent during the fixed term. | Missed rate cuts: You won't benefit from lower interest rates if market rates fall. |
Easier budgeting: Consistent repayments make household expenses easier to plan. | Limited extra repayments: Lenders may cap additional repayments or charge fees for exceeding limits. |
Protection against rate rises: Your fixed rate won't increase during the agreed period. | Fewer features: Offset accounts and redraw facilities may be restricted or unavailable. |
Potential break costs: Changing or exiting your loan early may incur costs. | |
Different rate pricing: Fixed rates may be higher or lower than comparable variable rates, so compare the rate, comparison rate, fees and features. |
Before fixing, consider your repayment plans, preferred loan features and potential costs.
What are fixed-rate break costs?
Fixed-rate break costs are charges your lender may apply if you repay, refinance or change your fixed-rate home loan before the fixed period ends.
They may reflect the lender’s estimated loss under the loan contract when a fixed loan is ended or changed early. Break costs may apply if you:
Refinance before your fixed term ends.
Sell your property and repay the loan early.
Switch to a variable or split rate home loan.
Exceed your lender's extra repayment limit.
How are fixed rate break costs calculated?
Break costs vary by lender and may be substantial or zero, depending on:
Interest rate differences: Depending on the lender’s methodology, a fall in relevant funding or swap rates may increase a break cost.
Time remaining: More time left on your fixed term may mean higher costs.
Loan amount: Your outstanding balance or the amount being repaid or changed affects the calculation.
Lender methodology: Each lender uses its own calculation and conditions.
Before changing your loan, ask your lender for a break cost estimate and check for other fees. For more information, see Aussie's home loan jargon explained.
Fixed rate example: How repayments compare when rates change
A 0.25 percentage point change in interest rate can affect your monthly home loan repayments. Here's how repayments on a $600,000 loan over 30 years compare, assuming principal and interest repayments and a starting rate of 6.25% p.a.
Scenario | Interest rate | Approx. monthly repayment |
|---|---|---|
Fixed rate | 6.25% p.a. | $3,694 |
Variable rate rises by 0.25 percentage points | 6.50% p.a. | $3,792 |
Variable rate falls by 0.25 percentage points | 6.00% p.a. | $3,597 |
In this example, a 6.25% p.a. fixed rate would protect against the $98 monthly repayment increase if rates rose. However, you'd miss out on approximately $97 in monthly savings if rates fell to 6.00% p.a.
Note: Figures are illustrative, not current loan offers. This compares repayments assuming each rate remains unchanged for the full 30-year term. In practice, a fixed rate usually applies for one to five years before the loan may revert to a variable rate.. Actual repayments depend on your loan balance, remaining term and lender conditions.
Use Aussie's Rate Change Calculator to estimate how different interest rates could affect your repayments.
Why do home loan interest rates change?
Home loan interest rates change because of Reserve Bank of Australia (RBA) decisions, lenders' funding costs, and market competition.
The RBA sets the cash rate target, which influences borrowing costs across the economy. Its Monetary Policy Board meets eight times a year to assess economic conditions and set monetary policy, aiming to keep inflation within its 2–3% target range.
Higher cash rates can tighten financial conditions and reduce demand and inflationary pressure, while lower rates can have the opposite effect.
However, lenders aren't required to pass on RBA rate changes in full. They can adjust mortgage rates independently based on funding costs, competition and other commercial factors. For more information, see Aussie's guide to how interest rates work.
At its 29 September 2026 meeting, the RBA raised the cash rate by 0.25 percentage points to 4.60%, citing persistent inflationary pressures.
Follow Aussie's latest RBA rate decision for updates.
You might also be interested in: What to do if your mortgage repayments increase
What happens when your fixed rate ends?
When your fixed rate expires, your home loan generally switches to your lender's variable interest rate, known as the revert rate, unless you arrange otherwise.
This rate may be higher than your previous fixed rate or rates available to new customers, potentially increasing your repayments. Before your fixed term ends, you can consider:
Re-fix your home loan: Lock in a new fixed rate with your existing lender.
Switch to a variable rate: Move to a variable rate offered by your lender.
Choose a split rate: Divide your loan between fixed and variable interest rates.
Refinance your home loan: Compare other lenders for potentially more suitable rates and features, subject to approval and costs.
Review your options a few months before expiry to allow time to compare rates and arrange any changes. An Aussie Broker can help you assess your options and prepare for potential repayment changes.
Use Aussie's Fixed Rate Expiry Calculator to estimate how your repayments could change.
Fixed vs variable vs split rate home loans: What’s the difference?
Home loans can have fixed, variable or split interest rates. The main differences are how repayments respond to rate changes, loan flexibility and available features.
Fixed rate: Your interest rate stays the same for an agreed period.
Variable rate: Your interest rate can rise or fall, affecting repayments.
Split rate: Your loan combines fixed and variable portions, with the split ratio depending on your lender's options.
You might also be interested in: Types of home loans in Australia: How to compare your options
Here's how they compare:
Feature | |||
|---|---|---|---|
Generally stable during fixed term | Repayments may change | Fixed portion generally stable | |
Unaffected during fixed term | Repayments may increase | Variable portion affected | |
No benefit during fixed term | Repayments may decrease | Variable portion may benefit | |
Often restricted | Generally more flexible | Depends on each portion | |
May be limited | Often available | Depends on loan features | |
May apply | No fixed-rate break costs | May apply to fixed portion | |
Usually reverts to variable | Not applicable | Fixed portion generally reverts to variable |
Note: Features, restrictions and costs vary by lender and loan product.
A split rate home loan may suit borrowers who want repayment certainty on part of their loan while keeping some flexibility. Learn more about how split rate home loans work.
You might also be interested in: What home loan features can you add to your mortgage?
Questions to ask before fixing your home loan
Before choosing a fixed-rate home loan, consider your financial plans and how much flexibility you need. Use this checklist to help assess your options:
How long do I want repayment certainty? Choose a fixed period that aligns with your financial plans.
Could I sell or refinance early? Consider whether changing your loan before the fixed term ends could trigger break costs.
Will I make extra repayments? Check your lender's repayment limits and potential fees.
Do I need offset or redraw facilities? Confirm which features are available and whether restrictions apply.
Is rate lock available? Check the fees, conditions and how long the rate lock lasts.
What happens when my fixed rate expires? Check the revert rate and how it could affect repayments.
Could I afford higher repayments? Test whether your budget could manage future rate increases.
Moneysmart recommends testing repayments at an interest rate three percentage points higher to assess your ability to manage increased borrowing costs. This is a budgeting exercise, not a rate forecast.
Pro tip: Compare fees, features and flexibility alongside interest rates.
How can an Aussie Broker help you compare fixed-rate home loans?
An Aussie Broker can help you compare fixed-rate home loans and choose the options that suit your budget and financial plans. Here's how they can help:
Compare home loans: Explore fixed, variable and split rate options across Aussie's lender panel, including rates, fees and features.
Understand loan conditions: Check rate lock options, potential break costs and repayment restrictions.
Plan for fixed rate expiry: Assess whether re-fixing, switching to a variable rate or refinancing may suit your circumstances.
Manage your application: Get help with lender requirements, paperwork and the application process.
Whether you're buying or reviewing your existing mortgage, an Aussie Broker can help you make an informed decision. Speak with an Aussie Broker to explore your options.
Is a fixed-rate home loan right for you?
A fixed-rate home loan can provide repayment certainty and protection against interest rate rises, but may limit flexibility and access to certain features.
Whether you choose a fixed, variable or split rate depends on your budget, borrowing needs, plans and lender conditions. Comparing rates, fees and restrictions can help you make an informed decision.
An Aussie Broker can help you explore your options and find a home loan that suits your circumstances.
