Can you get a 30-year fixed rate mortgage in Australia?
At present, no lenders in Australia allow you to fix your loan term for 30 years. There are a handful of products in the Canstar database with fixed terms up to ten years, but generally most lenders only offer fixed terms of up to five years at a time.
What is the longest fixed rate mortgage available in Australia?
At the time of writing there are only a few lenders in Australia that offer fixed rate home loan terms longer than five years. ANZ is most prominent, with its seven- and ten-year fixed rate products. A couple of smaller lenders also offer uncommonly long fixed rate periods.
Why aren’t there longer term fixed rates in Australia?
In other countries, notably the US, long-term fixed rates are much more common. Borrowers over there can often fix for their entire 20- or 30-year loan term.
There are a couple of reasons why Australian lenders don’t generally offer longer fixed-terms:
Less developed secondary mortgage market
In other nations including the US and Japan, government-backed institutions buy mortgages from lenders to package into mortgage backed securities (MBS) to sell to investors. This makes it less risky for lenders to issue long term fixed loans, since they can sell the loan.
In Australia, this market is much less developed. A lender that writes a 30-year fixed mortgage could be stuck with that loan for the entire term, which could mean losing money if interest rates go up.
Inability to hedge for such a long term
Lenders also may not be able to hedge a 30-year fixed rate using an interest rate swap, as they commonly do for short term fixed rates.
‘Hedging’ a fixed rate loan helps lenders protect their profit margins. Say you fix your loan at 5% p.a. and your lender borrows the money to give you at 4% p.a. from the wholesale market. So its profit margin doesn’t shrink if interest rates go up, it enters into what’s called a swap deal with another financial institution. This can be complicated, but essentially the lender pays the other party a fixed rate and receives a variable rate. If rates go up, the lender makes a profit on the swap deal, eliminating the risk.
This is common practice for short term fixed loans, but there generally isn’t demand on the other side to take on the risk of a 30-year hedge.
Are 30-year fixed rate home loans better for borrowers?
Pros of long-term fixed rates
- Stable repayments
Borrowers can plan their finances further into the future knowing their interest rate won’t unexpectedly increase. - Possibly less strict serviceability restrictions
If repayments aren’t going to change, lenders mightn’t have to ‘stress test’ mortgage applications as much. In the US for example, there isn’t an equivalent of the 3% serviceability buffer banks in Australia need to apply. - Borrowers may still benefit if rates drop
In the US, there aren’t the same penalties as in Australia for breaking a fixed rate term. That means if interest rates go down, you might be able to refinance a long term fixed-rate home loan to a lower rate without a huge break fee.
Cons of long term fixed rates
- Possibly higher rates
Rates on fixed terms that stretch far into the future are sometimes priced higher to account for the extra uncertainty. - Borrowers can get ‘locked in’ at a low rate
If a borrower were to take out a long term fixed rate home loan and interest rates went up, they may not want to refinance or sell their property in order to stay at the low rate. This might not sound like a bad thing, but in practice it can mean people hold onto unsuitable properties for longer and fewer properties are available for buyers. - Monetary policy is less effective. In the US, most borrowers choose long term fixed rates over variable (or ‘adjustable’, as they say) rates. However, this can make monetary policy less effective, as most people’s home loan repayments don’t change with the cash rate, meaning the central bank may need to keep rates higher for longer to bring down inflation.
Will there ever be a 30-year fixed rate home loan in Australia?
In 2023, a parliamentary research paper broke down whether 30-year fixed rate products could be viable in Australia. The authors identified some potential benefits, claiming long-term fixed rate mortgages could “insulate borrowers from big swings in variable interest rates” like we've seen in recent years.
However, they also noted that government sponsored entities such as Freddie Mac and Fannie Mae in the US make long term fixed rates possible. Without these institutions accepting the credit risk, Australian lenders were deemed unlikely to offer them.
