Fixed rate home loans - are they ever a good deal?

Since our first mortgage, I've sworn off fixed rates. No matter how good they seem, the variable rate over the time of the fixed rate seems to eventually do better.

DH has noticed UBank has a 3 year fixed rate at 1.75% and I'm wondering, how low is the variable rate going to go over that 3 years. Other banks have a variable at about 2.19%, so it would need to steadily drop to below 1.31% over the 3 years to be a better deal. Or maybe less because factoring in compounding interest is too hard!

Just curious what others think about fixed rates at this point in time.

We've fixed in the past, for 5 years - because I wasn't working and for us, it was like an insurance - we knew our repayments wouldn't rise.

Fixing gives you less options with the bank - ie we couldn't get offset accounts when we fixed. Extra repayments may not be allowed. etc.

If you are planning to sell in the next few years, look into what the break costs would be.

I like the predictability of fixed, but the benefits of variable, so I have a split loan.

We fixed most of the mortgage before we started trying for kids (5 year fixed), as it allowed us to do a fairly accurate budget. The variable portion is only slightly higher than the amount in the offset so even if interest rates go up we will be ok.

I get anxious thinking about the 'what ifs' so for me a fixed loan is better, despite the slightly higher interest rate (though my first loan was 5% and 7% split, so these rates between 2 and 3% seem so ridiculous! Definitely paying off as much as possible before they go up again).

We were able to split our loan. We had part fixed 80% part variable 20%. Fixed for 5 years. The next 5 we split 50/50. Now we are variable only. I did do calculations and we did end up being ahead with our fixing, but only marginally. What it did help do was keep our payments smoother over that time. Those 10years were our time of having 3 children and DH working hard to go up corporate ladder. Our initial mortgage was a stretch of BOTH our incomes. DH is now at a level where we are more comfortable being variable.

I think it depends on your goals. If you want to save money towards other things and minimise your repayments, or you need stability in repayments they can be great. Some allow you to pay additional up to a point so allow a bit more flexibility. We locked in a fixed rate when we first bought 12 years ago because we needed the stability, but since then we’ve just hunted down good variable rates so we can pay things down quickly.

I tend to think the banks are never going to bet against themselves, so if a fixed rate is that low for that long they’re predicting rates aren’t going north any time soon. Whether variables end up dipping below that is hard to say - we refinanced to 2.65% seven months ago thinking it was brilliant, and now we’re doing it again for 2.19%, so I think there’s a lot of competitive rates in the field at the moment

We have 50/50 fixed variable. So able to take advantage of the offset on the variable but know exactly what the repayments are on the fixed. Currently we have the same rate on both. The investment property is almost entirely fixed - makes it easy to budget.

I think fixing can be good for predictability and stability, particularly if you’re studying or not working as much, but my dad did his thesis on this a few years ago and there wasn’t a single period since fixed and variable have been an option where fixing was financially advantageous over the life of a loan. It can be good for short periods, but rolling fixed periods aren’t good and picking those periods is a gamble. The way he always explains it is if a bank is pushing fixed loan products hard- they want to lock you in, they’re not doing you a favour.

When my ex and I bought our place together we fixed 80% of our mortgage as we had planned on having a child and we wanted assurances of repayments. It was only for 3 years.

We broke up before that 3 years,

I kniw have a mortgage over the same property and not sure if I will keep it or sell it so I didnt fix it at all.

But that ubank rate looks very tempting!!! If I knew I was staying put I would probably lock it in.

But if you have any spare cash.... Consider spliting to pay the small one off or allow an offset of sorts.

**my two cents on ubank (take or leave it)

They usually have very competitive rates, either the lowest or close to it

BUT, they don't have an offset account and also used to only except low LVR (so lower risk for them, not sure if that's still true now).

So if you just want a low rate, ubank is usually a really good bet.

Now fixed vs variable is another thing altogether. I think you need to decide how much you want certainty on your repayments over next few years

The certainty side of things isn't a problem. We bought this house when rates were close to 5% (maybe higher?), so we've had to live with higher repayments in the past. Plus we are only talking about certainly for 3 years.

The selling or renting it out are probably bigger issues. I dream of a better house in a better location. Tough to say whether that will be realised in the next 3 years.

I wouldnt lock in the rate then.

Thanks for this thread - it inspired me to get off my bum and lock in a fixed rate for 80% of my loan at 2.29% definitely not as good as ubank but pretty chuffed given our variable is 3.08%!

I'm thinking about fixing in some - i have a large mortgage and the fixed rate is smaller, will be able to pay off a higher rate soon but only so much.

We just split our loan 50/50 with the fixed component for 2 years (plus able to make extra repayments to a certain amount p/a). Anything longer and like others said, it's in the banks' interest. Previously we had variable but could withstand upwards fluctuations.

We did fixed with a small variable portion that was fully offset for two years. We don’t do extra repayments but have saved a good chunk of cash in that time. We have now put up our variable amount which is almost 100% offset. In two years we should have another chunk of savings to increase the variable amount and again fully offset. I think we plan to do this on repeat till it’s paid. I’m not sure If this is a good strategy or not but it seems to work for us at the moment.

We have fixed for one year which allows us to still link our 100% offset account. This allowed us to take advantage of the much lower fixed rate while not missing out on the benefit of paying extra into the offset account each week.

We have been on a fixed rate for the majority of our mortgage balance for the past 10 years (I think we are on our 4th time re-fixing) . Each time the fixed rate has been lower than the one before and our variable rate on the smaller balance of our home loan (the portion that we can make extra payments on) has never gone below what the current fixed rate was at the time. The only issue with having the fixed rate is that it locks us in to that particular bank for the fixed rate period unless we want to pay break fees and also makes selling/moving house expensive because again, break fees. We have no plans to move or sell so the fixed rate works for us.