Home loan question: Is a short term fix just what you need?


If you haven’t noticed already, fixed home loans are well and truly back in vogue in 2020, largely replacing the spot previously occupied by variable home loans in offering the sharpest rates on the market.

In fact, you’d be hard pressed to find a lender that hasn’t substantially reduced its fixed rate offers in recent months.

Speaking of which, yesterday’s rate cut by Victorian-based Bank First is typical of this trend. The mutual bank dropped the interest rate available with its 3-year fixed term Home Loan (Fixed, Premier Package) by 20 basis points to 1.99% (3.10% comparison rate*).

That means the offer is now the lowest 3-year fixed rate in the Mozo database and one of the very few home loan interest rates sitting below 2.00%.

Bank First aren’t the only lender to have recently dropped a fixed rate offer to new lows though, with other notable changes in the past month including:

  • UBank: Cut 15 basis points off the 3-year UHomeLoan (Fixed) offer which now sits at 2.14% (2.41% comparison rate*)

Why are fixed rates so low?

As the examples above demonstrate, lenders are offering up some seriously competitive shorter term fixed rates at the moment, with a handful even dipping below the 2.00% mark.

But why is this the case, and does this present a real opportunity for borrowers?

According to Mozo Banking Expert, Peter Marshall, the widespread cuts we’ve seen to fixed rates in recent months flow back to actions taken by the Reserve Bank.

“Back in March, the RBA made a term funding facility available which was set at 0.25% for three years, so banks know that they’ve got a source of funding to draw upon. RBA Governor Philip Lowe has also said that he expects the cash rate to stay where it is for several years, which adds further to this idea of stability.

“Banks are also incredibly keen to attract new business, so they're trying to cut rates as hard as they can.

“If they’re offering a cheap variable rate though, they generally have to keep offering it for pretty much the life of the loan. However, with a cheap 1 or 2-year fixed offer, those rates only apply for a short amount of time before they revert to something higher.”

As the table below shows, despite already being lower back in January, shorter term fixed rates for owner-occupiers have been reduced by significantly larger amounts on average than their variable rate counterparts.

Average variable vs fixed rates for owner-occupiers^

January 2020August 2020Change
Variable rate3.71%3.38%-0.33%
1-year fixed rate3.32%2.58%-0.74%
2-year fixed rate3.18%2.54%-0.64%
3-year fixed rate3.21%2.62%-0.59%

Of course, while nabbing a low interest rate will certainly be high on the wish lists of most borrowers, fixed rate offers aren’t without some drawbacks.

“After the fixed period ends, it’s really open slather - customers either accept the revert rate a lender rolls them onto, or they need to make an active decision to choose another rate,” says Marshall.

“Most people won’t bother making that active decision though, and the lenders know that, which is why another reason why they’re very happy to cut their margins lower than they might otherwise because they know it’s just a short term cost.”

“Fixed loans often don’t come with an offset facility, or if they do, they tend to be quite limited. The same goes for borrowers making extra repayments, because these are often capped or limited as well.”

RELATED: Home loan rates are at record lows, but how much will your revert rate cost you?

Ready to see how your current rate stacks up? Check out some of the most competitive fixed rate offers in the table below, or head on over to the Mozo home loan comparison hub to compare over 500 loans from 80 Australian lenders.

^The averages displayed are based on a $400,000 loan amount with an 80% loan-to-value ratio for owner-occupiers making principal and interest repayments. These are rates from the Mozo database, accurate as of August 2020. For more information, visit our home loan statistics page.

Compare fixed home loans - last updated 13 August 2022

Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    4.49% p.a.
    fixed 1 year
    3.81% p.a.

    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 Home Loan

    Home Loan Package, Owner Occupier, Principal & Interest, LVR <80%

    interest rate
    comparison rate
    Initial monthly repayment
    5.57% p.a.
    fixed 1 year
    4.03% p.a.

    Ability to split your home loan between Fixed and Variable. Dedicated Relationship Manager. Min 20% deposit. Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must apply by 31 August 2022 and settle by 31 October 2022.

  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR 70-80%

    interest rate
    comparison rate
    Initial monthly repayment
    4.55% p.a.
    fixed 1 year
    3.91% p.a.

    Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.

  • Mozo Expert Choice Badge
    Fixed Rate Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    4.99% p.a.
    fixed 1 year
    3.63% p.a.

    Competitive fixed rates across 1 to 5 year terms. No application fee or annual fee. Free extra repayments (up to $10,000 per year). Winner of Australia's Best Large Mutual Bank 2022.


* 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, loan amount and term entered. 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

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