Data shows fixed-rate loans now make up nearly half of the total mortgage market, growing from humble beginnings only a few years ago. This is because banks and lenders are offering increasingly competitive interest rates on three-year fixed-rate loans, and borrowers are flocking to them.

Reserve Bank data also highlights a recent phenomenon where the average three-year fixed rate is now more competitive than its variable rate counterparts.

Below is a selection of sharp deals on three-year fixed-rate home loans for owner occupiers and investors.

What happens after my fixed period ends?

If you’ve made it to the end of your fixed loan period, first of all congratulations. And second, you’re probably wondering what to do next.

Once a fixed period comes to an end, a lender will usually offer you the opportunity to re-fix on another rate, or to 'revert' to a variable rate. If no action is taken, a lender will usually automatically place you on what’s called a revert rate.

A lender’s revert rate could either be its standard variable rate, or some other specialised interest rate. Either way, there’s a good chance this rate could be higher than what you were paying previously, so the end of the fixed term can be a good time to shop around and refinance. The comparison rate of a fixed rate loan can be a good indicator of where your rate could go - a high comparison rate could indicate a high revert rate.

Pros of three-year fixed-rate home loans

  • Competitive interest rates: Some of the most competitive advertised interest rates are available on fixed-rate home loans, and three year loans seem to hit the ‘sweet spot’ between length of fixed period and a competitive interest rate.

  • Lots of choice: There is lots of competition in the three-year fixed space, with many lenders vying for your attention. This means if you don’t like the look of one product, it won’t be too hard to find another product that suits your needs.

  • Repayment certainty: Repayments are locked in for three years, which means they won’t go up as interest rates rise in the wider market. While you can pay extra - up to a certain limit - repayment certainty can make it easier to budget.

Cons of three-year fixed home loans

  • You’re locked-in: As the name implies, you’re locked in. That makes it harder to refinance if you find another more competitive product or one that better suits your needs.

  • Break fees: if you do decide to break out of a fixed-rate loan before the end of the fixed term (e.g. you need to sell your house), a lender will probably charge you a break fee, which can add up to thousands, depending on when you fixed, and how long into the loan you are.

  • Repayment restrictions: Fixed home loans usually have caps on the amount of extra repayments you can make in a year. Usually this is around $10,000, but check with your individual lender.

Three year fixed home loans can present a good opportunity to lock in a competitive interest rate and have repayment certainty, but look at your own personal circumstances to assess whether such a loan is right for you.

Photo by Ilyuza Mingazova on Unsplash

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