Should You Fix Your Home Loan?

Three-year fixed interest home loan rates are at their lowest levels since 2009.

Borrowers who are concerned about rising interest rates now have a great opportunity to consider locking in their rate, according to Australia's best financial comparison website RateCity (

RateCity analysed more than 100 lenders in its extensive home loans database and found that average three-year fixed rates are at their lowest since October 2009, while two-year fixed rates have been falling since June 2009.

The average three-year fixed rate according to RateCity is 7.38 percent, which is just 8 basis points above the current average standard variable rate of 7.30 percent. Even more significantly, 36 lenders now offer three-year fixed rates below that variable average.

In the past month alone (from June 1 to July 1, 2011), RateCity recorded 18 lenders that dropped their three-year fixed rates by as much as 60 basis points.

Damian Smith, RateCity's CEO, said lenders are offering attractive fixed rate home loan deals to help kick-start lending but also to retain current customers with longer-term deals as exit fees on variable rate loans are banned.

"Lenders are clearly competing harder with their fixed rate deals at the moment, despite a general consensus that interest rates will rise in the coming months.

"The ban on excessive early fees does not include break costs for fixed rate home loans so it's a better deal for lenders to increase their customer base for fixed loans while borrowers could save on interest. For instance, we've found three-year fixed rates as low as 7.14 percent which is better than most standard variable rates currently on offer.

"The current average standard variable rate is 7.30 percent so if variable rates rise by 50 basis points in six months' time, you could potentially save $2,500 on a $300,000 mortgage in three years," said Mr Smith.

Comparing the major four banks - ANZ, Commonwealth Bank, National Australia Bank and Westpac - the benchmark three-year fixed rate (the average of the major four) has dropped to 7.33 percent, due to Westpac recently dropping its three-year fixed rate by 20 basis points to 7.29 percent, and ANZ decreasing by 10 basis points to 7.24 percent.

"With interest rates expected to rise later this year and into next year, it's definitely worth considering a fixed rate home loan while the deals are hot," said Mr Smith. "Obviously there are always risks in fixing a loan; if rates drop, you will end up paying more than you should, so borrowers should consider their alternatives carefully."

Mr Smith said borrowers who are concerned that fixed rates will rise before their new home purchase settles can lock in their fixed rate with their lender, usually at a cost.

Out of more than 700 residential fixed home loans in RateCity's database, half of which offer a fixed rate lock service with a fee. Those that charge a fixed fee, it ranges from $200 up to $750 and some charge a percentage of the loan - between 0.12 percent and 0.25 percent. For a $300,000 mortgage, 0.25 percent equals $750.

RateCity's top three-year fixed home loans and their advertised rates, as at July 5, 2011

1. Yellow Brick Road - 7.14%
2. CUA - 7.14%
3. Holiday Coast Credit Union - 7.15%
4. The Greater Building Society - 7.15%
5. Heritage Building Society - 7.15%

Want more? We thought you might like this video.


Sign Out

Join the Conversation

Please note, LifeStyle cannot respond to all comments posted in our comments feed. If you have a comment or query you would like LifeStyle to respond to, please use our feedback form.