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What is a four-year fixed rate home loan?

Fixing a home loan interest rate means making an agreement with your mortgage lender that you’ll pay interest on your home loan at a pre-set rate for a certain number of years. During this fixed rate period, the lender won’t increase or decrease the interest they charge you, even if their variable interest rates rise or fall to better suit the market.

Selecting a four year fixed rate home loan means that for the next four years, your home loan repayments will remain the same. This can make your household budgeting much easier, whether you're buying your first home as an owner occupier or you're taking out an investment loan.

However, choosing one of these home loans means agreeing to make fixed repayments for four years. Even if your circumstances change or you find a home loan with a lower interest rate, you likely won't be able to refinance your mortgage during the fixed rate period without paying break fees. These break costs could mean enjoying less value from refinancing to a new home loan with a lower interest rate.

You may also be able to select your repayment type. Some lenders will let you pay the interest only on your fixed rate home loan, which can greatly reduce your repayments for a limited time. However, your loan will eventually revert to principal & interest repayments, and because the loan will take longer to pay off in the long run, you may end up paying more interest on your property in total. 

Pros and cons of a four-year fixed rate home loan
  • Easier budgeting
  • Won’t be hit with rate hikes
  • May be less flexible
  • Won’t benefit from interest savings

How long can you fix a home loan for?

Most fixed rate home loans are available for fixed terms from one year to five years. Some lenders may also offer longer fixed rate terms, or will let you roll over your fixed rate for a total of up to ten years. 

However, most lenders will want to put you onto a variable rate at some point so that the interest being charged can better suit the demands of the Australian economy.

Can you fix a mortgage for longer than four years?

Five year fixed rates are relatively common. While some lenders may offer fixed rate terms as long as 10 years, these are the exception rather than the rule. 

Some overseas lenders offer 30 year fixed rate mortgages, but these home loan offers aren't available in Australia.

What happens at the end of a four year fixed home loan rate?

After your fixed rate period expires, your mortgage will revert to a variable interest rate for the rest of the loan term. This revert rate may be different to your bank’s standard variable rate, or even the variable rates offered to new home loan customers. Depending on how variable rates have risen or fallen over your fixed rate term, this could affect your home loan repayments.

If you know the end of your fixed rate term is approaching, it may be worth checking your bank’s revert rate and running the numbers though a home loan calculator to see how this will affect your mortgage repayments. Some borrowers have been caught by bill shock in the past when their low-rate fixed home loan reverts to a much higher variable interest rate.

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What other options are there outside of four year fixed rates?

A fixed rate home loan may not be the best choice for every borrower. Some of the other options to consider include:

Variable rate home loans

Most home loans in Australia either start on a variable interest rate, or end up on one. This is where the interest a lender charges may increase or decrease depending on the mortgage market and the state of the Australian economy. This could mean that your repayments increase when rates rise, costing you more. On the other hand, a cut to the interest rate could make your home loan a little bit cheaper, or allow you to pay it off faster.

Additionally, variable rate home loans are more likely to offer access to flexible features and benefits, such as extra repayments, a redraw facility, or an offset account. Making additional repayments can reduce your mortgage principal, as can offsetting your interest charges with the money in a transaction account. The option to redraw your extra repayments can be useful if you need that money back in a hurry. 

Split rate home loans

This is an arrangement where a fixed interest rate is charged on part of your mortgage principal, and a variable interest rate is charged on the remaining part. This may offer a borrower the best of both worlds, with the fixed percentage providing some insurance against potential rate rises, and the variable percentage offering access to more flexible repayment options. 

Keep in mind that the fixed rate charged on a percentage of your loan will eventually expire, and the revert rate may not be the same as the variable rate being charged on the other percentage - you could end up being charged two different interest rates on your mortgage! 

How do you get a four year fixed rate?

One of the simplest ways to find a home loan with a four year fixed rate is to look at RateCity’s comparison tables. You can use the filters to select only four year fixed rate offers, and enter your loan amount, deposit size and more to further narrow down your choices. Once you’ve prepared a shortlist of four year fixed rate home loans that may suit your needs, you can learn more about the offers or get in touch with the lenders with just a click.

Remember to look at the comparison rates as well as the interest rates for four year fixed home loans. Comparison rates combine the cost of interest with the cost of standard fees and charges, such as application fees and ongoing fees. This can give you a better overall idea of how much you may pay for each home loan. 

You can also use a Home Loan Calculator to estimate what repayments you may expect from a four year fixed rate home loan. As you approach the expiry of your four year fixed term, you can also calculate what repayments you may be able to expect when your loan reverts to a variable rate.

Before you make a home loan application for a four-year fixed rate home loan offer, be sure to check the eligibility criteria. For example, you may need a minimum deposit or equity to satisfy the lender's loan to value ratio (LVR) requirements, or else budget for the cost of Lender's Mortgage Insurance (LMI).

Can a broker get you a more competitive four year fixed rate?

Mortgage brokers are home loan experts who can help you find mortgage deals that are suited to your personal goals and financial situation. If you have your eye on a four year fixed rate home loan, a broker in your area can use their local knowledge to work out if this may be the best choice for you and your needs. Brokers may also be able to negotiate with lenders on your behalf to help you get a lower rate and/or more features and benefits, and may also be able to offer access to special deals that are exclusive to brokers.

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What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

What are the different types of home loan interest rates?

A home loan interest rate is used to calculate how much you’ll pay the lender, usually annually, above the amount you borrow. It’s what the lenders charge you for them lending you money and will impact the total amount you’ll pay over the life of your home loan. 

Having understood what are home loan rates in general, here are the two types you usually have with a home loan:

Fixed rates

These interest rates remain constant for a specific period and are a good option if you’re a first-time buyer or if you’re looking for a fixed monthly repayment. One possible downside of a fixed rate is that it may be higher than a variable rate. Also, you don’t benefit from any lowering of interest rates in the market. On the flip side, if rates go up, your rate won’t change, possibly saving you money.

Variable rates

With variable interest rates, the lender can change them at any time. This change can be based on economic conditions or other reasons. Changes in interest rates could be beneficial if your monthly repayment decreases but can be a problem if it increases. Variable interest rates offer several other benefits often not available with fixed rate home loans like redraw and offset facilities and free extra repayments. 

If a mortgage rate changes, will it affect your repayments?

If you have a variable rate home loan, changes to your mortgage rate may affect the cost of your repayments. Rising interest rate could cost you more in interest charges, while interest rate cuts could see you paying less interest on your home loan.

If you have a fixed rate home loan, your interest charges will stay the same during the fixed interest period, regardless of whether the lender’s variable rates rise or fall. Once the fixed rate term expires, your loan will revert to a variable rate, so be prepared in case of bill shock.

What is a mortgage rate?

The interest rate on a home loan is sometimes called the mortgage rate. This percentage indicates how much interest the lender will charge you with each home loan repayment. Your interest rate is effectively the “cost” of “buying” the money you’re using to buy a property – the higher your mortgage rate, the more your home loan repayments may cost.

Using a home loan calculator, you can estimate how much your home loan repayments may cost, based on your mortgage rate, loan term, and loan amount. This may also be affected by whether you’re making principal and interest repayments or interest-only repayments, if you have a fixed rate or variable rate mortgage, and any fees and other charges that may apply.

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

This article was reviewed by Head of Content Leigh Stark before it was published as part of RateCity's Fact Check process.