Compare 3 year fixed home loan rates

A three-year fixed rate home loan allows you to lock in an interest rate for a three-year period before your initial rate expires and reverts back to a variable interest rate. During this time, your interest rate will stay the same, even if market interest rates rise or fall.

These types of home loans can appeal to people who want to be sure of their mortgage repayments for a period of time so they can get used to budgeting. Owner occupiers and first home buyers may appreciate how a fixed interest rate allows them to keep the repayments on their owner occupied home loan consistent. Australians with investment loans may also appreciate the consistency of a fixed interest rate, whether they're making principal & interest or interest only repayments. 

Three-year fixed home loans are typically one of the most common fixed terms for borrowers. However, you can find fixed home loan terms from as short as one-year fixed, to two-years, five-years and even ten-years fixed, so it’s important to compare all your options against your financial situation to find one that works for you.

Once the initial three-year period expires, you will usually be offered the opportunity to refix another interest rate or revert to a variable rate home loan.

Please note that if you accept a new three-year term, it’s likely to be at a different interest rate (either higher or lower). If you choose to revert to your lender's standard variable rate, your interest rate and mortgage payments on your loan amount are also subject to change.

At the time of writing, many home loan interest rates had fallen to record lows, but have since started to slowly increase. Many banks and other mortgage lenders have been starting to raise the rates on their longer term fixed rate deals in anticipation of future changes to the cash rate from the Reserve Bank of Australia (RBA).

Depending on your financial situation, fixing your interest rate for three years or longer could theoretically allow you lock in a low rate, keeping your home loan repayments affordable even while variable rates increase. Plus, your repayments may be simpler to manage as you’ll know exactly how much you’ll need to budget for at least three years.

Of course, this would also effectively lock you in with your lender for at least three years, leaving you unable to refinance to another lender without being hit with significant break costs. Plus, at the end of the fixed rate term, your loan will revert to a variable rate, which could see you hit with bill shock if variable rates have risen significantly in the meantime. Be sure to compare your options and consider our financial situation before making a commitment.

There are a number of potential benefits to choosing a three-year fixed rate home loan, including the following:

• Easier to budget: Because you know how much interest you’ll be paying over a set period of time, you can budget and set financial goals accordingly. This could be especially beneficial for new homebuyers who also have to pay for other initial expenses like renovations.
• You won’t be affected by rate rises: Your interest rate is fixed for three years, meaning you can’t be affected by increases in standard interest rates.
• Set regular repayments: You’ll know how much you have to pay each week, fortnight or month and can schedule payments accordingly.

On the other hand, there are also some possible drawbacks to choosing a three-year fixed rate home loan, such as:

• Interest rate decreases won’t apply to your loan: You can’t benefit from a general decline in interest rates during your fixed interest period.
• You may not be able to make extra repayments: Additional repayments aren’t always offered with fixed rate loans.
• You may not be able to redraw: Not having a redraw facility means you can’t access any extra money you’ve deposited into your home loan.
• You may be subject to break fees: If you choose to break your agreement for the fixed interest period it’s likely you’ll have pay a fee – and it could be significant.

It’s also possible to fix your home loan’s interest rate for four or even five years. Some lenders may even allow you to extend a fixed loan term for longer. This could allow you to benefit from an affordable mortgage rate and simpler household budgeting for longer.

However, it’s worth keeping in mind that the longer you fix your rate, the longer you’ll be effectively locked into a mortgage with your lender, as you’ll likely have to pay significant break fees in order to refinance with another mortgage lender. Also, if variable rates were to rise significantly during your longer fixed term, your mortgage repayments could increase a lot once your loan reverts to a variable rate.

Selecting and applying for a home loan offer isn’t just about deciding between a fixed rate or variable interest rate. Here are some of the other factors to take into consideration:

Interest rates

Aside from choosing between a fixed rate or variable rate, you should also look at a lender’s initial rate offering and how it shapes up against other lenders in the market.

Some lenders also offer split home loans, which means part of your home loan is variable and part of it is fixed. This could allow you to take advantage of some of the some of the benefits of both types of loans.

Fees

There are numerous fees associated with taking out a home loan and they can add up over time. Some of the most common fees to look out for include:

• Application fees
• Annual ongoing fees
• Account-keeping fees
• Legal & settlement fees
• Settlement fees
• Exit fees
• Break fees (for fixed interest home loans)
• Annual package fee (if your mortgage comes bundled with other financial products and services)

Also keep in mind that some lenders offer to waive fees if you meet certain conditions.

Sometimes a home loan with a low fixed interest rate but high fees and charges can actually cost more than a home loan with a higher interest rate but lower fees and charges. One quick and simple way to get a better idea of a home loan's total cost is to look at the comparison rate, which combines the cost of interest and standard fees into a single percentage. 

Repayment options

Different lenders have different stipulations for making home loan repayments. For example, if you have a three-year fixed rate home loan, or any fixed loan, you may not be able to pay any extra than the minimum repayments during the fixed rate period.

It’s important to choose a loan that offers you a reasonable balance of stability and flexibility in making repayments over time.

Other features

Some home loans are relatively basic, while others offer a suite of features. Consider other possible features such as:

• An offset account: This is a transaction account that is linked to your home loan. The balance of your account is ‘offset’ against your loan balance, meaning your lender attributes those extra savings towards your loan – so you pay less in interest.
• The option to redraw: A redraw facility allows you to borrow back extra money you’ve already repaid.
• Incentives: Some lenders offer additional incentives for home loans such as the ability to earn frequent flyer points or being offered a free holiday.

Choosing an appropriate mortgage offer for your home or investment property comes down to conducting some independent research and comparing home loans in relation to your financial circumstances. This includes checking the eligibility criteria, such as your loan to value ratio (LVR). Also, before making a home loan application, consider seeking professional advice by speaking with a financial adviser or a mortgage broker.