Fixed rate home loans at the tipping point for good value

Cartoon crunches the costs of her fixed home loan

Fixed home loans are no longer out of the market – at least, according to the Mozo database.

Over the last year, home loan interest rates have increased by 3% - 4% for variable home loans, thanks especially to the Reserve Bank of Australia. 

Many customers hoping to avoid the hikes by fixing haven’t had much luck finding deals better than the average variable rate. Many more are still (rightfully) wary of fixing given that the rate cycle is closing. After all, the next major market change is likely to be a cash rate cut in 2024

However, fixed interest rates are predictive. Now that lenders sense rate hikes are over, some of the fixed offers in Mozo’s database have ticked down and tipped back into competition. Could home buyers find better value by fixing their interest rate?

Differences shine between fixed home loans and variable home loans

Cartoon budget comparison between fixed and variable rate home loans

The main difference between fixed and variable home loans is the interest rate. Variable rates rise and drop at the lender’s whim during your entire loan term, while fixed interest rates stay the same for a guaranteed period.

To help draw customers, lenders usually offer more competitive features on variable home loans than fixed ones, especially interest-saving features like:

  • Offset accounts to store your savings
  • Free extra repayments to pay down your loan sooner. 
  • Easier refinancing – the break cost of ending a fixed term early can be enormous.

For a fixed rate to be good value, it has to beat the competition’s interest rate and offer the sweet spot between financial security and good features. A variable interest rate home loan can be better if it could save you more money – and vice versa for the fixed rate. 

Currently, the average variable interest rate for owner-occupiers making principal and interest repayments is 6.61% p.a. in the Mozo database – the lowest is 5.54% p.a. 

Now let’s compare this to the best and average fixed interest rates by term. 

Average fixed interest rates by home loan term (18 September 2023)

Term
Average
Lowest^^
1-year
6.37%
5.48%
2-year
6.32%
5.49%
3-year
6.26%
5.48%
4-year
6.50%
5.84%
5-year
6.49%
5.54%

^^Taken from Mozo’s database of P&I OO home loans, current as of 18 September 2023.

As you can see, the rates are roughly comparable between fixed and variable home loans, with fixed rates just slightly lower. A rate difference of 5 - 50 basis points – while seeming small – can add up over time, as shown in Mozo’s switch & save calculator.

However, given that the cash rate is predicted to drop in the next year, it becomes a question of timing. Which type of rate will drop first, and fastest? And is it worth fixing for a few years when variable rates might cut in that time?

Mozo banking and rates expert Peter Marshall says it still comes down to borrower preference. However, fixed rates will likely win the race to cut first. 

“I think if economic indicators remain reassuring for the RBA over the next couple of months, we’ll see rates starting to drop before the end of the year,” Marshall explains.

“So, another two months or so, and it’ll be a torrent of fixed rate cuts. There are reasons to be optimistic if you’re a home buyer at the moment. Just hold on a little longer, and fixed rates will become more favourable.”

Especially now that the home loan rate war is over, the appeal of opting out of the chaos by fixing can be strong. But remember, it’s about chasing value, not necessarily lowest spend  – although low monthly repayments is certainly a reason to look twice at a home loan.

Thinking of fixing? Compare some of the hottest fixed offers tracked by Mozo in the table below.

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 16 June 2024 Important disclosures and comparison rate warning*
  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.