Five years. Half a decade. That's about the longest amount of time most mainstream lenders will allow you to fix your home loan for. There are a few lenders offering seven or 10-year fixed-rate home loans, but the higher interest rates hardly seem worth it.
Luckily, five-year fixed-rate home loans seem to dodge much of that, offering fairly competitive market rates in lieu of repayment certainty. Many providers also offer them, meaning there's plenty to choose from.
Compare home loans fixed for five-years
The market is awash with competitive five-year fixed loans, just make sure you do your research before deciding if fixing is right for you, your budget, and your home loan goals.
Below is a selection of owner occupier home loans with a five-year fixed term from a range of providers.
Virgin Money – Reward Me Home Loan Fixed (Principal and Interest) 5 Years (LVR < 60%) (New Customer)
IMB Bank – Fixed Rate Home Loan (Principal and Interest) 5 Years (LVR ≤ 80%)
Pros of Five-Year Fixed-Rate Home Loans
1. Repayment certainty
As the name implies, fixed-rate loans fix the interest rate, which in turn fixes your repayment. This can help if you’re looking for cashflow certainty.
Even a few basis points of increases to your home loan interest rate can add hundreds to your repayment, which can blow out the budget. If you have the same repayment, you know what you're dealing with and how it will factor into your budget.
Life throws many curveballs, and the last thing you need is your mortgage repayment increasing dramatically.
2. Avoid variable rate creep
Even if the RBA isn't moving up the cash rate, variable-rate home loans can still experience some creep. Any lender will have a 'front book' of rates offered to new customers, and a 'back book' of rates offered to existing customers.
Unfortunately, there is usually no reward for staying loyal, with many lenders having no qualms about moving up existing customers' variable rates. A fixed-rate loan will put a stop to this.
3. Weather further rate rises
2022 saw some of the fastest interest rate increases on record, with the Reserve Bank increasing the cash rate by 300 basis points between May and December 2022.
Many variable-rate home loans went up with it. Experts say more is on the cards, inevitably urging some borrowers to think about fixed-rate products again.
Locking in before any further rate increases means you could 'weather the storm' so to speak, and with a five-year fixed rate, do it for a lengthy period.
Cons of Five-Year Fixed-Rate Home Loans
1. Higher interest rates
Most of the competition in the fixed lending space has been in the 1-2 year range, as opposed to the 3-plus year range. RBA data for 2022 new loans shows the average difference between the two is 65 basis points.
Between variable-rate and 3-year-plus rates, that average gulf widens to 103 basis points.
Is five years of certainty worth an extra 0.65% to 1.03% p.a. on your home loan rate?
2. Less flexibility
A fixed-rate mortgage typically has more restrictions, including:
- Extra repayments: Banks and lenders typically cap extra repayments on fixed-rate loans at $10,000 per year.
- No offset: It's rare to find a fixed-rate home loan with an offset account, which can help lower interest paid over the life of the loan.
3. Break costs
One broker Savings.com.au spoke to once saw a client pay $35,000 in break fees to leave their fixed home loan. This is a fee calculated based on the lender’s wholesale funding costs. The longer you have to go on your fixed period - and the more you’ve borrowed - the greater your break fee is likely to be. If you settle on a fixed-rate loan, you'll want to stick with it for the entire fixed period.
Photo by Muhammad Zaqy Al Fattah on Unsplash
Ready, Set, Buy!
Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!
With bonus Q&A sheet and Crossword!