

When does fixing your loan make sense
Many assume fixing their loan will save them money if the fixed rate is lower than the variable. Sometimes that’s true—sometimes it’s not.
If you locked in a 3 year fixed rate at 3% a few years ago you were laughing!
If you fixed your loan at 6% for 3 years a year ago, and interest rates are now going down, are you happy with that decision?
Fixed rates can signal the direction of the variable
Fixed rates often move before variable rates.
For example, in January many banks reduced fixed rates before the RBA announcement. It’s not guaranteed variable rates will follow straight away, but it is a signal.
The same works in reverse: if fixed rates start climbing, it’s a sign that variable rates could also rise soon.
When Does Fixing Your Loan Make Sense?
When it suits your situation. Here are three questions to ask yourself:
- Do you expect any major life changes during the fixed period?
- Will uncertainty around future rates cause you stress?
- Do you have extra money you’d like to offset against interest?
Fixed loans generally don’t have offset accounts. If you plan to use savings to reduce interest, keep this in mind—or consider a split loan.
Fixed loans mean committing to a lender, an interest rate, and a repayment schedule for a set period of time. If you need to sell, refinance, or make changes, breaking the agreement can be costly.
Breaking a fixed loan-What's the cost?
A break cost is a fee you may pay if you exit your fixed-rate home loan early.
Say you fix a $400,000 loan for 3 years at 6%, and after 1 year rates drop to 4%. The bank calculates the fee (break cost) based on the rate difference (2%) on the balance of your loan for the remaining 2 years—roughly $15,000.
All this to say, if you break your fixed loan agreement, the bank will not be out of pocket...you will!
Similarities of a Bank and a Casino
In short, the odds are always in their favour
- If they want more owner occupier loans at a 70% LVR, they'll run a short-term promo to attract that client.
- If they want more investment loans, you’ll see an offer for that.
Banks don’t reward loyalty. It doesn’t matter if you’ve been with them since your first Dollarmite account in primary school (FYI, this program ended in 2022). Your history as a long-term customer means little to nothing.
Ever wonder why banks offer lower interest rates to new customers but not existing ones? Now you know.