With a 5-year fixed rate home loan you'll know exactly what your repayments are every month, for half a decade. But if you need to exit the loan early you'll pay a hefty break fee.
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With any fixed rate home loan your interest rate won't change during the initial fixed period of the home loan. The fixed period is usually between 1 and 5 years.
After that the loan reverts to a variable interest rate for the remainder of the loan. Most Australian home loans have 30-year terms and the majority of borrowers have variable rate home loans.
A 5-year fixed rate loan is a relatively long time to fix your interest rate.
Other fixed rate periods
Most lenders offer fixed rates between 1 and 5 years. Learn more about different fixed periods with these guides:
You are looking to buy a $750,000 home. You've saved up a 20% deposit and so you need to borrow the remaining $600,000.
You apply for an owner-occupier home loan with a 30-year loan term. It's a 5-year fixed interest rate of 6.00%.
This means that for the first 5 years of the loan your monthly repayment is $3,598, every single month.
After the 5-year fixed period the loan reverts to your lender's standard variable interest rate. Given that it's quite hard to forecast rates that far ahead, it's impossible to know what that future rate will be.
What happens at the end of a 5-year fixed rate home loan?
Once the fixed period on a home loan ends the loan reverts to a variable interest rate. This will usually be a lower rate than the previous fixed rate.
You don't have to do anything when your 5-year fixed period is over. You just keep making repayments at the new rate.
But it's worth checking that you can't get a better rate, either from your current lender or by refinancing the loan.
Is it a good idea to get a 5-year fixed rate mortgage?
Most borrowers don't want to fix their rate for 5 years. It's too long. The interest rate is higher and the break fee is also quite high if you need to sell, refinance or pay off the loan early.
Why some borrowers fix for 5 years
Your repayments won't change. Some borrowers value certainty and the ability to budget more than getting a lower rate.
Forget about rate rises. You don't have to worry about rising interest rates and you can plan ahead.
Why most borrowers don't fix for 5 years
There are a couple of downsides to fixing for a long time that put off many borrowers:
5-year fixed loans often have higher rates
Longer-term fixed rate loans will have higher interest rates. 5-year fixed rate home loans are therefore the most expensive fixed rate options.
Even if the rate is competitive right now, it's a long time to stick to that rate when you can't predict how rates will move in that time.
Expensive break costs
Breaking a fixed rate loan early can cost your lender. That's why there's a break fee involved. Lenders calculate this cost based on various factors, including the amount of time remaining on your loan's fixed period.
This is why a 5-year fixed rate loan is riskier. By locking in your rate for so long a break fee is going to cost you much more, especially early in the loan.
Fewer loan features
Fixed rate home loans are less likely to come with the most useful mortgage features, such as:
100% offset accounts
Extra repayments
Redraw facilities
What kind of borrower is a 5-year fixed rate loan suitable for?
While less popular, there are some borrowers who might see value in locking in their rate for half a decade.
A 5-year fixed rate is suitable for borrowers who:
Have fluctuating income or simply want to budget their repayments exactly and forget about changing rates.
Are confident they won't need to sell their property or pay off the loan in the next few years.
Think interest rates will continue rising for the next few years.
On that last point, it's pretty hard for the average borrower to time the market on rate rises. "You only ever fix it if it makes you feel more comfortable," says mortgage broker Josh Bartlett. "It's not about beating the banks."
A 5-year fixed rate is not suitable for borrowers who:
Want the lowest interest rate
Want to make extra repayments on their loan
Want an offset account
Want to pay off their loan early
Are 5-year fixed rate loans higher than variable rate loans?
Usually, 5-year fixed rate loans have the highest interest rates compared to other fixed rate loans and variable rate loans. Fixed rates in general are typically higher than variable rates.
However, in the current interest rate environment where lenders are expecting rates to drop soon, fixed rates are some of the cheapest home loans. In general, it's 3-year fixed rate loans that have the most competitive rates, but there are several 5-year fixed home loans which are cheaper than variable rate home loans.
To make sure you get a great deal on a 5-year fixed rate loan, pay attention to the rate, the fees and the loans' features.
Focus on the following:
Get a lower rate
Even if fixed rates are higher than variable rates, it's important to compare multiple 5-year fixed rates to find a good deal. Why pay more interest for no reason?
Get a loan with low fees
A lower interest rate is more important, but the lower the fees the cheaper the loan will be.
Loan features
Fixed rate loans have fewer features than variable rate loans, like 100% offset accounts or the ability to make extra repayments. But some do, so it's worth comparing.
Frequently asked questions about fixing your home loan rate for 5 years
As of October 2024, the average 5-year fixed rate owner-occupier loan rate is 6.55%, according to Finder's database.
Most fixed rate loans don't let you make extra repayments. Some do, but may charge an early repayment fee, while other loans limit the extra amount you can repay (usually to around $15,000 a year).
If you want to pay off your loan faster, you should get a loan with an offset account or find a loan with unlimited extra repayments. This is probably a variable rate loan.
If your only concern is getting the lowest rate possible, you've missed your chance with a fixed rate. Rates have risen fast since 2022.
This is true for all fixed rate loans, including 5-year fixed rates. If your reason for fixing is to get the lowest rate, you're better off going with a competitive variable rate loan.
It's hard for the average person to understand interest rate moves. Lenders and banks are largely free to set their own rates on home loans, but they are guided by the broader economy and how easy (and cheap) it is for them to borrow the money to fund home loans.
The Reserve Bank of Australia (RBA) also plays a big role. The bank sets the official cash rate, which sets a benchmark for the cost of institutions to lend and borrow money. When the cash rate goes up, lenders raise variable interest rates for borrowers. But they also start to raise fixed rate loans for new customers.
Follow Finder's monthly cash rate predictions to find out where the experts think rates are heading.
A split rate loan allows you to divide your loan into fixed and variable rate portions. This means you can lock in 50% of your loan for 5 years and have the remaining 50% on a variable rate.
A split rate lets you have the best of both worlds and is a way of hedging your bets if you're concerned about rate rises but still want the extra features and repayment options on a variable rate loan.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 554 Finder guides across topics including:
While getting a 10-year fixed rate home loan might be a good idea if you want to keep your repayments the same over the next decade, you will pay more if interest rates drop.
Thirty year fixed rate home loans are a great way to lock in a great interest rate for the entirety of your loan but Australia doesn’t currently offer this lengthy loan option.
Early repayment adjustment, also known as a break fee, is charged when you end a fixed loan contract. Learn how banks calculate these fees.
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