What type of home loans are there?
There’s more to buying a home than just choosing the right property – there’s also the question of how to structure your loan. Generally speaking, there are three types of home loan rates available. A fixed rate will see your interest payments remain steady for a set period of time, while a variable rate could see them go up and down. A split rate, on the other hand, can allow you to combine the two at a percentage split that’s appropriate for your needs.
If you want to lock in a steady home loan interest rate for the medium term, then one option might be to choose a five-year fixed rate home loan. You can find answers below to some of the most frequently asked questions about five-year fixed rate home loans. Otherwise, you can also use the comparison table at the top of the page to compare current home loans on the market from our online partners.
If you want to lock in a steady home loan interest rate for the medium term, then one option might be to choose a five-year fixed rate home loan." } },{ "@type": "Question", "name": "What is a 5-year fixed home loan?", "acceptedAnswer": { "@type": "Answer", "text": "A five-year fixed rate home loan is one in which the interest rate you’ll pay on the balance of the loan is locked in place or ‘fixed’ for a period of five years. This means that, throughout the entire five-year term, the interest rate will remain the same, and you will be guaranteed that it will not fluctuate, as it would with a variable rate loan.
It is possible to lock in a home loan rate for a shorter or longer period of time, depending on your preference and what your lender is willing to offer. For example, you may only want to fix your rate for a comparatively short period of one, two or three years. Alternatively, if you are happy with your rate, you may choose to lock it in for five years." } }]}
Frequently Asked Questions about 5-year Fixed Home Loans
What is a 5-year fixed home loan? 
A five-year fixed rate home loan is one in which the interest rate you’ll pay on the balance of the loan is locked in place or ‘fixed’ for a period of five years. This means that, throughout the entire five-year term, the interest rate will remain the same, and you will be guaranteed that it will not fluctuate, as it would with a variable rate loan.
It is possible to lock in a home loan rate for a shorter or longer period of time, depending on your preference and what your lender is willing to offer. For example, you may only want to fix your rate for a comparatively short period of one, two or three years. Alternatively, if you are happy with your rate, you may choose to lock it in for five years.
5-year fixed rate loans: Pros and cons
What are potential advantages of a 5-year fixed home loan?
There can be a number of possible benefits you could see from locking in an interest rate for five years. These include:
- protection from interest rate rises. With a five-year fixed rate, your repayments will remain the same from month to month for the whole five-year period. This means that you will be protected from interest rate rises, for that period, and if your lender raises interest rates significantly on the home loan you have, you will still be paying a lower rate.
- a sense of certainty in your repayments. Along with protection from interest rate rises comes a certainty in your repayments. Knowing that you will be paying the same interest rate on your home loan for five years can give you the ability to budget for other needs and expenses, while knowing exactly how much your mortgage will cost. Keep in mind the comparison rate on a home loan product will combine the interest rate with most fees and charges, to give you a more accurate cost of the loan overall.
- the potential to save on fees and charges. Variable rate loans come with added features such as offset accounts and redraw facilities. While these may be appealing, they can also make a loan more expensive, so if you are happy without these extras, a five-year fixed loan could include fewer fees and charges.
What are potential drawbacks of a 5-year fixed home loan?
While locking in an interest rate for five years can give you a sense of security in your repayments, there are a number of possible downsides to consider, including:
- the potential to miss out on a lower interest rate. When you lock your rate in, you will be protected from interest rate rises, but conversely, you will also miss out if interest rates fall.
- an inability to make additional repayments. In general, variable rate home loans are structured in a way that allows you to make extra repayments, bringing down the balance of the loan and reducing the interest you pay. Fixed rate loans generally do not come with this feature, and if they do, it will usually come at an extra cost.
- fewer features. The features of a variable rate home loan can be appealing. For example, depending on your loan, you may be able to use an offset account to lower the balance of your home loan, while having access to your funds for everyday banking. If you do want to have features like this on a fixed rate loan, some lenders may offer them at an extra cost, but with a fixed rate loan, you may feel you are missing out on added features.
What happens when your fixed loan term ends?
Generally speaking, when a five-year fixed term (or any fixed term) ends on a home loan, you will have several options. You could:
- revert to a variable rate with your current lender
- refinance with your current lender or a new lender at a new fixed rate
- refinance with your current lender or a new lender at a split rate
- refinance with a new lender at a variable rate.
Can you break a 5-year fixed home loan?
Generally speaking, it is possible to break a fixed home loan, though this will depend on the specific terms and conditions of the home loan product you take out. If your contract allows you to exit from your loan early, it’s likely that you will be charged a ‘break cost’ or a ‘break fee’. Lenders generally charge this amount as a form of compensation for lost profits that they may face as a result of borrowers breaking loans.
Explore further: Breaking a fixed-rate home loan: What are break costs?
While there is no set amount for break fees, they generally take into account the fixed interest rate (relative to current interest rates), the amount of time left on the loan, and the amount of the loan itself.
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About our home loan experts
Alasdair Duncan, Senior Finance Journalist
Alasdair Duncan is a Senior Finance Journalist at Canstar, specialising in home loans, property and lifestyle topics. He has written more than 200 articles for Canstar and his work is widely referenced by other publishers and media outlets, includingYahoo Finance,The New Daily,The Motley FoolandSky News. He has featured as a guest author for property websitehomely.com.au. In his more than 15 years working in the media, Alasdair has written for a broad range of publications. Before joining Canstar, he was aNews Editor atPedestrian.TV, part of Australia’s leading youth media group. His work has also appeared onABC News, Junkee, Rolling Stone, Kotaku, the Sydney Star Observer and The Brag. He has a Bachelor of Laws (Honours) and a Bachelor of Arts with a major in Journalism from theUniversity of Queensland. When he is not writing about finance for Canstar, Alasdair can probably be found at the beach with his two dogs or listening to podcasts about pop music. You can follow Alasdair onLinkedInandTwitter.
As Canstar’s Ratings Manager, Josh Sale is responsible for the methodology and delivery of Canstar’s Home Loans Star Ratings and Awards and the Home Loan Refinance Awards. With tertiary qualifications in economics and finance, Josh has worked behind the scenes for the last five years to develop Star Ratings and Awards that help connect consumers with the right home loan for them.
Josh is passionate about helping consumers get hands-on with their home loans, always reminding home buyers that finding the right loan can be as important for your finances as negotiating a fair property purchase price. Josh has been interviewed by media outlets such as the Australian Financial Review, news.com.au and Money Magazine, discussing topics including home loan equity and wider finance trends.
When it comes to Josh’s own property journey, the home loans expert once bought two houses in the same transaction when he ensured the cubby house his daughter loved was listed on the purchase contract for his new home.
You can follow Josh on LinkedIn, and Canstar on Twitter and Facebook.
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A Target Market Determination (‘TMD’) is a document that explains which people particular financial products may be suitable for (the target market) and sets out any conditions around how financial products can be distributed to consumers.
Why do product issuers provide Target Market Determinations?
From 5 October 2021, TMDs are compulsory for most financial products.
Issuers and distributors of financial products must take reasonable steps that are likely to result in financial products reaching consumers in the target market defined by the product issuer.
We recommend that you consider the TMD before making a purchase decision. Contact the product issuer directly for a copy of the TMD.
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Any advice on this page is general and has not taken into account your objectives, financial situation or needs. Consider whether this general financial advice is right for your personal circ*mstances. Canstar provides information about credit products. We’re not suggesting or recommending a particular credit product for you. If you decide to apply for a loan, you will deal directly with the provider, not with Canstar. Consider the Target Market Determination (TMD) before making a purchase decision. Contact the product issuer directly for a copy of the TMD. It’s important you check rates and product information directly with the provider. For more information, read our Detailed Disclosure. ^Read the Comparison Rate Warning.
Modifying existing arrangements
Before you elect to terminate or modify existing lending arrangements, we recommend you consider (i) your personal circ*mstances, and (ii) any associated fees, exit costs and application costs that may be applicable as well as the impact these changes could have on you. We suggest you consider seeking independent advice from a qualified adviser.
Interest-only loan
“Interest-only loan” generally means a loan where you will only pay interest during the interest-only term. That means you won’t be making payments which reduce debt during the interest-only term.
Canstar Certified Mortgage Brokers
On some Home Loan products, you can choose to be referred to a mortgage broker who has been certified by Canstar according to our certification process. Mortgage brokers may not be able to offer loans from every provider. The loans included in the table are loans that Canstar Certified Mortgage Brokers can discuss with you, if you choose to do so. There may be more suitable loans for your personal circ*mstances.
If a broker successfully completes the Canstar certification process, they may pay Canstar a fee to use the official Canstar Certified Mortgage Broker badge. Canstar may earn a fee from the Canstar Certified Mortgage Broker, or the broker group they are affiliated with, if you settle a Home Loan via a Canstar Certified Mortgage Broker after being referred to the broker by Canstar. Fees payable may vary depending on the home loan product and product provider.
Not all mortgage brokers available in the market have undertaken the certification process. Canstar has invited a limited number of brokers to undertake the process, and only those brokers who have successfully completed the certification process are entitled to use the logo and wording “Canstar Certified Mortgage Broker”. Being certified as a Canstar Certified Mortgage Broker is not a representation that the holder’s mortgage broking services are superior to all other brokers who do not hold the certification.
Canstar Certified Mortgage Brokers are independent contractors, operate under their own Australian Credit Licence, or as Credit Representatives under an Australian Credit Licence, and are not Canstar’s agent or representative. They are not Home Loan product providers, but they can make recommendations to you about Home Loan products that may suit your needs. The broker may require you to enter into an agreement with them in relation to the services they can provide. Canstar will have no knowledge of or input into the advice and product recommendations you receive from a Canstar Certified Mortgage Broker.
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Your use of the Canstar Group’s Mortgage Broker Referral tool does not mean that you will be eligible to be approved for any particular home loan.
