29 Jan 2025 Fixed-Rate Home Loan: Why It Could Be Right for You

A fixed-rate home loan gives you repayment certainty by locking in your interest rate for a set period, protecting you from market fluctuations. This makes budgeting easier, but many borrowers struggle with loan approval due to strict lending criteria, loan fees, and eligibility requirements.

With expert guidance, our EverLend mortgage brokers can help compare fixed-rate loan options from various lenders, assist with your loan application, and negotiate the lowest rate tailored to your financial situation. Our brokers will see to it that you understand loan features, break costs, and additional repayments, making the process smooth and stress-free.

So, is a fixed-rate home loan the right choice for you? Let’s explore its benefits, features, and what you need to know before applying for a mortgage in Melbourne.

 

What is a Fixed Rate Home Loan?

A fixed-rate home loan keeps your interest rate constant for a specific term, typically between 1 and 10 years. Unlike variable-rate home loans, where interest rates fluctuate with market conditions, fixed loans provide predictable monthly repayments.

Comparison: Fixed vs. Variable Rate Loans

Fixed-rate loans: Offer repayment certainty and stability over a defined period of time. However, they may include restrictions like limited additional repayments.

Variable rate loans: Variable rate loans have rates that can change due to market fluctuations, allowing greater flexibility for extra repayments and redraw facilities but less predictable monthly repayments.

Key Features of Fixed-Rate Home Loans

Before choosing a fixed-rate home loan, it’s essential to understand its key features.

• Repayment Certainty: You’ll know your monthly repayments over the loan term, helping with budgeting and cash-flow certainty.
• Rate Lock Option: Lock in current rates before your loan is finalised, safeguarding against rate rises.
• Break Costs: Exiting a fixed loan early may incur significant fees.
• Limited Extra Repayments: Fixed loans typically cap additional payments.
• Offset Accounts: While not always available, some lenders offer this offset account feature to reduce loan interest.

These features make fixed-rate home loans an attractive option for Melbourne homeowners seeking stability.

 

How Does a Fixed-Rate Home Loan Work?

A fixed-rate home loan locks in your interest rate for a set period, typically between 1 to 10 years, ensuring repayment certainty with stable monthly repayments. Unlike variable rate loans, where rates fluctuate based on market conditions, fixed loans protect borrowers from rate increases but may have break costs for early exits.

Example Scenario

Emma buys a home in Melbourne for $800,000 and takes out a fixed-rate home loan for $640,000 (80% loan-to-value ratio) over a 5-year fixed term at 6% p.a. interest.

Loan Breakdown:

• Loan amount: $640,000
• Interest rate: 6% fixed for 5 years
• Loan term: 30 years
• Repayment type: Principal & Interest

Monthly Repayment Calculation:

Using a loan calculator, Emma’s monthly repayment is approximately $3,838 for the fixed term. This ensures cash-flow certainty and protects her from future interest rate movements.

A fixed-rate loan gives her peace of mind, but she must consider limitations on extra repayments and potential break costs if she refinances early. Understanding these factors helps borrowers decide if a fixed loan is the right choice.

 

Melbourne Property Market in 2025: How Ideal is a Fixed-Rate Mortgage?

In 2024, Melbourne’s median house price was $923,422, with unit prices averaging $600,000 (CoreLogic). Analysts predict a 3%-5% rise in property values in 2025, driven by population growth and increased buyer activity. Rent prices are also expected to climb, with demand high in suburbs like Carlton, Richmond, and Footscray.

A fixed-rate home loan is an ideal option in this market, offering repayment certainty and protection against potential interest rate increases. As the official cash rate remains steady or rises, locking in a fixed rate shields borrowers from fluctuating variable rates, ensuring predictable monthly repayments.

For investors, the stability of a fixed-rate term provides consistent cash flow and makes long-term planning easier, particularly in high-demand suburbs. Whether you’re an owner-occupier or investor, a fixed-rate mortgage offers peace of mind in Melbourne’s competitive property market.

 

Eligibility Criteria for Fixed-Rate Home Loans

To qualify for a fixed-rate home loan, lenders assess various factors to ensure you meet their lending criteria. Understanding these requirements can help you prepare a strong loan application.

• Proof of Income: Lenders require payslips, tax returns, or financial statements to verify your income. This demonstrates your ability to manage monthly repayments and maintain cash flow throughout the loan term.

• Good Credit History: A solid credit score is essential to meet credit assessment criteria. It helps lenders determine your reliability and affects your eligibility for competitive loan interest rates.

• Deposit Amount: Most fixed-rate loans require a deposit of at least 5%-20% of the property value. A larger deposit reduces the loan amount subject to approval, improving your chances of securing a loan at the lowest rate.

• Property Valuation: Lenders will conduct a property valuation to ensure it aligns with the loan amount. The security property acts as collateral for the fixed-rate home loan and impacts the loan balance.

• Identification and Documentation: Provide a valid ID, loan calculators, and loan contracts for a seamless application process. These documents confirm your identity and streamline your application to the settlement process.

 

How to Apply for a Fixed-Rate Home Loan

Applying for a fixed-rate home loan involves several key steps, from assessing your finances to finalising the loan settlement. Here’s a step-by-step guide to help you secure the right loan with repayment certainty and the lowest rate available.

1. Assess Your Financial Situation

Review your loan amount, cash flow, and credit score to determine your borrowing capacity. Use a loan calculator to estimate monthly repayments and compare loan products.

2. Get Pre-Approval

A lender will assess your loan application, credit history, and financial documents to issue a conditional approval. This step helps you understand your eligibility and loan term options.

3. Choose a Fixed-Rate Home Loan

Compare loan features, rate periods, and break costs to find the best fixed-rate loan. A mortgage broker can help you compare loan rates and navigate lending criteria.

4. Submit Your Loan Application

Provide payslips, bank statements, and property details for final assessment. The lender will conduct a property valuation and verify your ability to meet loan repayments.

5. Loan Approval and Settlement

Once approved, you’ll receive a loan contract outlining your repayment type, fixed-rate term, and offset account availability. After signing, the lender will finalise the loan settlement, and your funds will be disbursed.

A fixed-rate home loan offers stability, but it’s essential to understand the loan fees, extra repayment limits, and potential break costs before committing. Let a loan expert guide you through the process for a smoother experience.

 

Choosing the right fixed-rate home loan can be overwhelming, but you don’t have to do it alone. EverLend’s mortgage experts will help you compare loan rates, fixed-rate terms, and break costs to find the best option for your financial situation.

Get professional advice and secure the lowest rate with confidence. Call EverLend today at 03 7036 3356 to get started!

 

FAQs

Is it a good idea to get a fixed-rate loan?

Yes, fixed-rate loans provide repayment certainty and stability, making them ideal for budgeting.

Which bank has the best fixed interest rate?

Rates vary; check comparison websites for current rates from Australian lenders.

Is a fixed-rate mortgage a good idea now?

With potential rate increases, locking in fixed rates could protect against future rate rises.

What is a good fixed rate right now?

Good rates depend on market conditions. As of late 2024, rates around 5%-6% are competitive.

How do I qualify for a fixed-rate home loan?

You’ll need a solid credit history, deposit, and proof of income.

Can I make extra payments on a fixed loan?

Many fixed loans allow limited additional payments. Check your loan contract for details.

What happens after the fixed-rate period ends?

Your loan typically reverts to a variable interest rate home loan unless renegotiated.

Conclusion

A fixed-rate home loan can offer repayment certainty, protection from rate increases, and predictable monthly repayments—making it a great choice for many Melbourne homebuyers and investors in 2025. However, factors like break costs, extra repayment limits, and loan term flexibility should be carefully considered before making a decision.

If you’re unsure whether a fixed-rate loan is the right option for you, EverLend’s mortgage experts can help. Get a free consultation to compare loan products, fixed-rate terms, and lender options tailored to your financial goals. 

Our main office is located in St. Kilda, with our services covering the greater area of Melbourne. Call us today at 03 7036 3356, or visit our website for a free personalised consultation.