There are pros and cons to every option, say experts. Image: Canva.
  • Only 5.5% of Australians are fixing their home loan rates
  • Some two year rates may seem cheaper, but there are pros and cons to every option
  • Experts said it is difficult to always make the right choice

Interest rates have risen twelve times since May 2022, with the cash rate going from the Covid lows of 0.1% to 4.10% in June this year.

Many who had hoped the official cash rate would remain at 0.1% are unsurprisingly now feeling the heat of a year’s worth of cash rate rises, having shelled out thousands more than they would have otherwise planned to.

Looking for a lower rate is understandable, with research via Bard finding the two year fixed rate in Australia is around 5.9% for 15 June 2023.

Average home loan rates for Australia

Loan Type Average Rate Minimum Rate Maximum Rate
Variable 6.38% 5.24% 8.89%
2 Year Fixed 5.87% 4.99% 7.15%
3 Year Fixed 5.87% 4.99% 7.43%
5 Year Fixed 6.27% 5.29% 7.74%

Generated using Bard.

Data provided by Canstar similarly shows two year fixed rates as lowest among the four options.

Average rates and repayments for major banks in Australia

Loan Type Interest Rate Monthly Repayments
Variable 5.99% $2,995
2 Year Fixed 6.03% $3,007
3 Year Fixed 5.79% $2,931
5 Year Fixed 6.53% $3,169
Source: Canstar – 25/05/2023. Based on the average owner-occupier rate on Canstar’s database, available for a $500k, 80%LVR, principal & interest loan; excluding introductory and special condition loans. Average calculated from the lowest rate available from each provider. Monthly repayments assume a loan term of 30 Years.

While two year fixed rates may seem to be one of the cheaper options at first pass, there are many factors that need to be considered before diving in.

“Fixing can help you get certainty about the level of your repayments for the term of the fixed rate,” Mozo‘s banking and interest rate expert, Peter Marshall, told The Property Tribune

“However, if rates start going down again an option that looks reasonable now could seem expensive in a few years.”

Peter Marshall, Mozo

“Predicting the direction of interest rates over even 2 or 3 years can be hard to get right.”

Other shortfalls of a fixed loan include the cost of varying the loan.

“There are often high penalties for paying the loan off early, refinancing, selling the property or making extra repayments,” Home Loan Experts‘ Otto Dargan told The Property Tribune.

“So see it as a fixed contract that you cannot break. Sometimes these costs can be tens of thousands of dollars.”

When a fixed rate loan expires, the home loan typically reverts to a variable home loan.

The difference between a two year fixed loan and variable rate loan

Had a borrower taken out a $500,000 loan in May 2021, prior to the latest string of interest rate rises, it would have seen the mortgagee save thousands.

Data provided by Canstar shows the delta between interest costs for a two year fixed loan and a variable rate loan was more than double.

Past benefits of a two year fixed home loan


Interest Rate Monthly Repayments

($500k, P&I, 30 years)

Interest Cost in First 2 Years

Took out a variable loan at the average rate in May-2021


3.22% $2,168





6.72% $3,275
Increase 3.50%


Took out a 2 year fixed loan at the average rate in May-2021


2.19% $1,896  



May-23 2.19%



Source: Canstar – 24/05/2023. Average rate based on the average owner occupier home loan rate on Canstar’s database, available for a $500k, principal & interest, 80%LVR loan (with cash rate increases applied in their respective months for the variable scenario). Scenarios assumes a 30 year loan term.

Currently, just 5.5% of all new loans are fixed rates, based on the ABS Lending Indicators latest data from March 2023. This is down from a peak of 46% in July 2021.

Proportion of new loans that are fixed (based on original values)

Source: Canstar, based on ABS Lending Indicators March 2023.


Before making any financial decisions, please do your own independent research, taking into account your own situation. This article provides factual information only and is not intended to imply a recommendation or opinion about a financial or credit product. See our Terms of Use.

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