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Fixed Rate Loans mean that your interest rate is locked in (won’t change) for an agreed period of time. This means you will know exactly what your repayment is for that period of time.

This means that you will be protected if interest rates go up, but will not benefit if interest rates go down.

When is it used?

This loan is predominantly used as follows:

Cash Flow certainty – By fixing your interest rate you effectively guarantee your repayment will stay the same for the fixed period of time. This gives you security in the knowledge that your repayments will not get out of control with rising interest rates and plan your cash flows with greater certainty.

We strongly recommend you read ‘to fix or not to fix’ in the tips and traps section

Important Points when considering Fixed Interest Loans

  • If you fix your loan and need to discharge it during the fixed interest period there may be considerable costs to do so. As a general rule of thumb:

    - If interest rates have gone up the bank is happy to let you out of your fixed interest period with only administration costs. In simple terms this is because someone else is willing to borrow the money at a higher rate and the bank does not lose

    - If interest rates have gone down the bank does not have anyone willing to borrow money at your higher rate. Consequently they will be charged for the difference between what people are willing to pay now and your higher rate. This charge is of course passed on to you and, depending on the degree of change in rates and loan size, may be in the tens of thousands of dollars!

  • By fixing your loan it is important that you understand that additional repayments to reduce your loan are either not allowed during the fixed period or are limited (generally to $10 000 per annum).


Features

  • Known repayment for the fixed period
  • Do not suffer or gain from interest rate changes during the fixed period
  • No or limited additional repayments ($0 - $10 000 per annum)
  • No redraw of additional repayments until end of fixed interest period.
  • Potentially large fees if need to break the fixed interest period at an adverse time.