Fixed interest home loan in Australia is a mortgage loan where the interest rate stays the same. Accepting this type of loan is often a gamble.
On the positive side, the fixed interest home loan protects the borrower from the increases of interest rates by Reserve Bank. On the other hand, this type of the home loan maybe undesirable if the banking system lowers their variable interests.
Generally, banks assume that the interest rate will rise in the near future. To balance the risk, banks set the fixed interest home loan in Australia to be higher than the variable one. Lending institutions offer fixed interest home loans to up to 5 years. After this period the loan is redirected into the variable interest type.
The longer is the term of the fixed interest home loan in Australia the higher is the value of the interest rate. For example, Aussie will charge the following interest rates on the Aussie Classic Fixed Account:
In Australia, the fixed interest home loan have not outclassed the variable rates at any time for the past 10 years.
It is difficult to promote something which one does not have the control over it. It is the economy which governs the benefits or downfalls of the fixed or variable home loans.
At the current economic market there is no indication that interest rates will increase drastically over the next 5 years. At the same time there is no indication that interest rates will fall either.
Thus, if one considers the risk then probably a 3 year fixed interest home loan is save to choose. It represents a mid range choice to either cushion rapid increases or absorb unexpected decreases in rates.
For 20 year term (or less) home loans, choosing right fixed loans is beneficial. In this case the fixed period (assuming 3-5 years) represent almost a quarter of the repayment time.
Thus, any future unexpected variable interest rate increases can be absorbed by the right choice of the fixed loan. Let us assume a loan of $200K with a fixed rate over 3 years.
Currently, Heritage Building Society leads the market with 6.95% fixed interest rate. ING is not far behind with 7.09%. The monetary difference in repayments between Heritage and ING is only $20 per month. Not much, however bigger lenders like ANZ charge 7.39%.
Thus, the ANZ customer pays $56 per month more than the Heritage's loan applicant. Over 3 years, this amounts to $2016 savings for the later.
Westpac offers similar deal as ANZ while NAB is only 0.1% better than the other two banks. Thus, currently the smaller lenders lead the marked in fixed loans.