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Should I fix my rate before interest rates rise further?

By ,| 3 min read

With interest rates on the rise in Australia, many homeowners are likely wondering how they can keep their home loan repayments down.

Some borrowers might be considering fixing their home loan interest rate.

In this article, we discuss what’s happening with mortgage interest rates in Australia and whether you should consider fixing yours before rates move again. We also explain what happens if you want to switch to a variable interest rate before your fixed rate term ends.

What’s going on with home loan interest rates?

Interest rates have begun rising in Australia after 18 months of remaining at record lows. The cash rate increased for the first time in nearly 12 years this May, with more rises expected to come throughout 2022.

This means home loan interest rates are increasing too. Borrowers on variable interest rate home loans will be affected almost as soon as the cash rate increases, provided their lender passes on the rate rise in full.

On the other hand, borrowers with fixed rate home loans won’t feel the effects of a cash rate hike just yet.

So, with more increases to the cash rate on the horizon, is it worth fixing your interest rate now?

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Should I fix my interest rate before rates continue rising?

A fixed interest rate is ‘fixed’ to your home loan for a specified period of time. This is called a fixed term, and it typically lasts from 1 to 5 years.

One of the main benefits of a fixed rate is if interest rates rise, your home loan repayments will stay the same until the end of your fixed term.

If you’re a borrower who enjoys the certainty of making the same repayment amount each month and the stability it brings to your household budget, a fixed interest rate could be for you.

However, it’s important to note that fixed rates are rising as well as variable rates. So, there are a few things you might want to weigh up before choosing to fix your rate now, such as:

  • Is a fixed rate more competitive than a variable rate? While variable rates can fluctuate over time, it’s still possible you could pay more on a fixed rate
  • Will I want to refinance or make unlimited extra repayments before the end of the fixed term? If the answer is yes, you may want to consider staying with a variable rate, as you may incur break fees for doing this on a fixed rate
  • Will I be satisfied with the features available to me on a fixed rate loan? Fixed rate loans don’t typically offer loan features like redraw facilities, unlimited extra repayments and 100% offset accounts
  • Could a split rate be more beneficial? If you want the benefits of both a fixed and a variable rate, a split rate could be for you (more on this shortly).

Ultimately, you’ll need to consider your individual financial situation and needs before deciding to fix your home loan rate.

If you’re having trouble deciding if fixing your rate is right for you, talking to a Home Loan Specialist could help.

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What if I want to change to a variable rate before the end of my fixed term?

If you choose to fix your interest rate before rates continue rising, there will likely be certain conditions attached to your fixed rate loan.

These include break costs, which your lender may charge when you refinance your loan, pay off your loan early or make extra repayments before your fixed term is up.

So, if you wish to change to a variable rate prior to your fixed term ending, you’ll want to weigh up whether it’s worth paying break fees or waiting until the fixed rate period has ended.

If you are not sure you can commit to the conditions of a fixed rate home loan for a full fixed period, you might want to think about a split rate loan.

What is a split rate loan?

A split rate loan allows you to fix a portion of your interest rate and keep the other portion on a variable interest rate. This doesn’t have to be a 50/50 split – you can choose how the loan is broken up between fixed and variable interest rates.

Choosing a split rate loan can allow you the certainty of fixed repayments while also experiencing lower repayments should rates drop, as well as the features that typically only come with variable rate home loans.

If you have questions about fixing your interest rate, Lendi’s Home Loan Specialists can help. Book an appointment at a time that suits you.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, interest rate, fixed rate home loans, fixed interest, variable interest, standard variable rate, split loan, split rate

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Important legal stuff
Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
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