When it comes to home loans, applicants are faced with the choice of variable or fixed rate loan. Learning about how fixed rate loans work can help you make the best decision for a home loan.

With a fixed rate home loan, the funds used to finance a home purchase are borrowed against a determined interest rate for a period of time. Over the course of the “fixed” period, the interest rate does not change, leading to the same amount of required repayments.

A fixed rate loan provides a level of security and assurance to borrowers - it means locking in the cost of interest during the length of the fixed period, allowing you to plan ahead for the repayments without worrying about changes in interest rates.

Borrowers who are concerned about going over a set budget for their mortgage will benefit the most from taking out a fixed rate loan. As the interest rate on the loan will remain the same, borrowers will have peace of mind that the repayment amounts will stay within their expectations throughout the fixed term period.

In most cases, borrowers will be able to choose the duration of the fixed rate term — depending on the lender, the fixed term can be up to 10 years. After the fixed rate term has passed, the loan will revert to having a variable interest rate unless the borrower decides to continue with an extension of the fixed rate.

Fixing the interest rate at a certain level can help borrowers defend against the rising costs of interest in future, but this also means that if the interest rate falls in future, borrowers will be stuck with repaying at the higher fixed rate.
  1. Determine how much you need to borrow for your home loan
  2. Consider how long the fixed interest rate term should be
  3. Use a loan calculator to find a comfortable level of repayments during the term period
  4. Approach a mortgage broker to assess your suitability for a fixed rate loan, as well as gather possible options from a variety of lenders
  5. Choose a lender that offers the best terms for your financial situation and goals
  6. Gather the required documents and apply for a fixed rate loan

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