A fixed loan can be a good choice if you need to budget, for example if you are a first home buyer with only a small deposit, or you have a baby on the way and will go from two incomes to one. They're even better when they are at an historical low, like they are right now.

"Rates below five per cent can be found for fixed terms of up to three years," says Peter Marshall, product data manager for Mozo. "These rates are very low and even if the RBA does cut some more, it is unlikely that fixed rates will go significantly below their current levels."

Breaking early may cost you

Fixed rates can give you certainty about your loan repayments. However, the downside is you may have to pay expensive break costs if you want to repay the loan early.

How it works:

  • When you lock in your interest rate your bank borrows money from the wholesale market. 
  • If you repay early, the bank needs to reinvest or relend the money at rates current at that time. 
  • If wholesale interest rates are lower than when you fixed the loan, the bank makes a loss and needs to recoup the money from you. 

What to look for

Look for fixed home loans that offer:

  • a 100% offset account (offered by Adelaide Bank, for example)
  • extra loan repayments without penalty – available from many lenders, including the big four banks (check exactly what limits apply)
  • low fees (use the comparison rate to compare home loan rates)
  • the option to substitute the security (home) without paying break fees (this is important if you think you may want to sell during the fixed period).

Tips on fixed rate loans

  • Consider a split loan – fixed interest on only part of your home loan. You can make extra repayments into the variable portion of the mortgage.
  • Don't try beating the bank. Even economists are often wrong when predicting long-term interest rate movements.
  • If you want to break a fixed mortgage, ask your bank for the fee and make sure you check the deadline; the break fee may change the next business day.

Fixed deals from the Big 4

Big four banks fixed home loan deals
Bank 1 year (%) 3 year (%)  5 year(%) Extra repayments while fixed?
ANZ* 4.79 5.05 5.79 5% of initial loan balance or $5,000/year, whichever is less
CBA* 4.79 5.09 5.69 $10,000 per fixed term year
Westpac* 4.79 5.06 5.69 $20,000 per fixed term 
NAB* 4.79 5.09 5.79 $30,000 per fixed term 

Notes: Rates based on a packaged loan of $250,000 over 25 years.

*Fixed loans revert to the package home loan with an annual fee and package rate of ANZ, $375, 5.08% CBA, $375, 5.10% NAB, $395%, 5.08% Westpac $395, 5.08%

Source: mozo.com.au. Current at: 7 April 2014

Top five fixed interest rate home loan deals

1-year fixed loans
Lender Rate (%) Comparison rate (%)*
IMB 3.99 5.33
UBank 4.38 4.85
eMoney 4.42 4.64
Reduce Home Loans 4.44 5.34
HSBC 4.49 5.33
3-year fixed loans
Lender Rate (%) Comparison rate (%)*
ME Bank 4.69 5.21
MyState 4.87 5.67
The Rock Building Society 4.87 5.92
UBank 4.88 4.83
Heritage Bank 4.89 5.50
5-year fixed loans
Lender Rate (%) Comparison rate (%)*
Illawarra Credit Union 5.39 5.25
RAMS 5.45 5.97
QT Mutual Bank 5.49 5.81
Bank of Queensland 5.49 5.89
Maritime, Mining and Power CU 5.49 5.57

Notes: Selection excludes closed credit unions, loan must be available for loans with an LVR of 80% and loan amount of $300,000, must be able to fix full loan at this rate.

*Comparison rates based on a loan of $150,000 over 25 years.

Source: mozo.com.au. Current at: 31 March 2014