Fixed rate investment home loans

author-avatar By on September 15, 2021
Fixed rate investment home loans

Many investors choose fixed rate home loans for repayment certainty. Find out if a fixed rate is right for you and your investment property.

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time. It is common for a loan to be a fixed rate loan for a period of one to five years, before it changes to a variable rate. The advantage of a fixed rate is that during the fixed term, you know exactly how much your repayments will be.

If you’re new to the market and don’t feel comfortable taking any risks then you may want to consider choosing a fixed rate home loan, much like many new property investors do for the first several years of their investment property loan.


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Buying an investment property or looking to refinance? The table below features home loans with some of the lowest fixed interest rates on the market for investors.

Advantages of fixed rate investment loans

The key advantage of a fixed rate loan is repayment certainty. By knowing exactly what your repayments will be, you’ll be able to budget for the future. This factor often makes fixed rate home loans very popular for investors over the first two to three years of owning a property. This enables investors to get off the ground and find tenants without worrying about their repayments going up.

Disadvantages of fixed rate investment loans

The downside to an interest rate being locked in for a length of time is that it’s locked-in. This probably goes without saying, but there’s a few considerations:

  • Interest rates could drop: If interest rates drop, chances are you could be paying too much on your home loan, and it’s tempting to switch, but…

  • Break fees could apply: Break fees often occur if you break out of a fixed loan term early. This fee, payable to your lender, is often a calculation based on the difference in interest rates, and how long you are into the home loan. This could add up to many thousands of dollars, negating any benefit of refinancing.

Another disadvantage is that there is often less flexibility with a fixed rate loan. One example of this is additional repayments. There could be penalties for making additional repayments beyond the allowed limit - usually the allowed limit is up to $10,000 but check with your lender to make sure. Because of this, the ability to redraw or add an offset account might not be offered on a fixed rate loan, effectively reducing the flexibility of the loan.

Fixed rate investment home loans can present a useful opportunity to have repayment certainty while starting a new investment property, but there are some considerations to keep in mind.


Image via Nathan Van Egmond via Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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