Fixed rate

A fixed interest rate locks in a loan’s interest rate for an agreed period — commonly one to five years — providing certainty about repayment amounts and protection from market rate increases.

How fixed rates work

When a borrower selects a fixed rate, the lender guarantees the rate for the agreed term regardless of changes in central bank policy or wholesale funding costs. At the end of the fixed period, the loan typically reverts to a variable rate unless the borrower negotiates a new fixed term.

Example

A borrower fixes a $400,000 loan at 5.5% for three years. Repayments stay constant for those three years even if market rates rise to 7% or fall to 4%.

Trade-offs

• Repayment certainty — easier budgeting and protection from rate rises
• Limited flexibility — most fixed loans cap or charge fees on extra repayments
• Break costs — exiting a fixed loan early often triggers significant fees calculated against the difference between the fixed and current market rate
• Offset and redraw restrictions — fixed loans frequently disable or limit these features

When comparing fixed and variable products, look at the comparison rate rather than the headline rate alone, and model both scenarios over your expected loan term.