With interest rates at an all-time low, many fixed rates are lower than variable options. Locking in an interest rate on your home loan to guard against possible future fluctuation can protect you from the volatility of potential rate movement. However, it’s worth knowing the ins and outs of fixed rate loans before committing to one.

When purchasing a property, refinancing or just renegotiating with your current lender, borrowers can generally decide between fixed interest loans that maintain the same interest rate over a specific period of time, or variable rate loans that charge interest according to market rate fluctuations.

Fixed-rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early, selling the property or switching to variable interest during the fixed rate period. However, locking in the interest rate on your home loan can offer stability for a certain amount of time that is prearranged between you and your lender.

Further to this, fixed rate loans can also be pre-approved. This means that you can apply for the fixed rate loan before you find the property you want to buy. You simply pay a fixed rate lock-in fee also known as a ‘rate lock’, which will, depending on the lender, give you between 60 to 90 days from the time of application to settle the loan at that fixed rate. Pre-approvals help you to discern how much money you are likely to have approved on your official application. Knowing that your potential lender will offer a fixed term fixed interest loan gives further peace of mind for those borrowers looking to budget precisely rather than be susceptible to rate fluctuations.

In addition, you can consider the possibility of arranging a ‘split’ loan. This option allows you to split your loan between fixed and variable rates. This can allow you to ‘lock in’ a fixed interest rate for up to 5 years on a portion of your loan, while the remainder is on a variable rate which may give you more flexibility when interest rates change and potentially minimise the risks associated with interest rate movements. Also, be aware that at the end of the fixed rate term, your loan agreement will include information about how the loan will then be managed by the lender, usually to a ‘revert’ variable rate – which may not be the lowest the lender offers.