A number of banks have begun to discount their fixed rate home loans. First NAB, then Westpac lowered their rates recently and each of the banks currently has at least one fixed loan offering that is cheaper than their variable rate mortgages.
Paying even a small amount less each month will be tempting for a lot of borrowers, with studies showing plenty of Aussie families are currently battling mortgage stress. And of course, the biggest winners of the past four years have been those who locked in fixed rate loans, back when the cash rate was at a historic low and the RBA was yet to begin its aggressive hiking cycle that saw it raise from 0.1% to 4.35%.
So is now a good time to take the deals on offer and fix?
Economic climate change
The first thing to remember is that the economic climate is very different in 2025 compared to 2021. Back then, inflation was beginning to take off and rates were not going to go any lower. Locking in a rate at 2% or below for three or four years turned out to be the best decision that a lot of people made. Many saved tens of thousands of dollars in dead money paid to the bank in interest as a result of that decision.
Now, though most believe the cash rate hiking cycle is over and that the central bank will cut multiple times over the next couple of years. And the ‘deals’ the banks are offering are nothing like they were in 2021. Right now, you’re still lucky to get a fixed rate at the 5.5% mark. If you locked that in now, you’d run the risk of watching variable rates go down below 5% and even 4%, knowing that you’d signed up to be paying way more than you needed to each month.
You need to ask yourself why banks offer the deals they do. It’s not for your benefit, it’s for theirs. They know that if they dangle a carrot, the small amount of money you save initially will be swallowed up by the extra that you’ll end up paying longer term.
Other reasons to fix
Fixing isn’t always about grabbing the lowest rate on offer. It’s a strategy that comes with pros and cons and will invariably suit some people better than others.
A fixed rate can give you stability and certainty for budgeting purposes. If you are the type of person who wants to be able to plan exactly where your cashflow is directed for lengthy periods, a fixed rate term of several years can allow you to do so without having to worry about sudden or multiple payment increases affecting your strategy.
You just need to be ready to accept missing out on payment reductions if rates do begin to fall.
Flexibility problems
Fixed rate products can also be limiting if you want some flexibility to move money around or make extra repayments. Variable rate loans are the ones that have more features like offset accounts, redraw facilities and the ability to make unlimited additional repayments; all handy if you’re looking to reduce the amount of principal that you are paying the interest against.
The other obvious thing is that things change in life and if for one reason or another you need to refinance or sell, a fixed rate loan might mean you need to pay expensive fees or break costs for the privilege.
Split the difference
Most lenders give you the option to have some of your cake and eat it too, by fixing a portion of your loan and leaving the rest as a variable. If you split it 50/50, that’s half the value of your loan that isn’t affected by unforeseen rate fluctuations, while the other half is where you can make your savings in the form of extra repayments, or by taking advantage of extra flexibility.
And if rates go down, you can get a piece of that savings pie too.
