Fixed Interest Rate
A fixed interest rate is a home loan rate that stays the same for a set period, usually between one and five years.
Quick Reference:
Repayment Stability. 1-5 Years Typically.
Expanded Explanation:
Fixed rate loans give borrowers certainty by locking in repayments for a time period. Even if the Reserve Bank of Australia raises rates, your repayments won’t change during the fixed period. The downside is reduced flexibility. Fixed loans often limit extra repayments and don’t include features like offset accounts. When the fixed term ends, the loan usually reverts to a variable rate. Of course, the person taking the loan can usually elect to lock it in again at a new rate and new time period.
It should be noted, that if the Reserve Bank suddenly drops cash rates, the person with the fixed loan will likely be “overpaying” for their debt when they would have otherwise had a better variable rate if they had not locked the loan rate.