Interest rates are as low as they have ever been for Aussies, and there’s no telling how long rates will stay as low as they currently are – some economists say the Reserve Bank of Australia (RBA) may not raise the cash rate again until 2024, while others are tipping it to rise again from early 2022.
With interest rates tipped to remain low for at least the immediate future, now could be a good time to lock in a low fixed rate for your home loan. A fixed rate home loan is one in which the interest you repay is set or ‘fixed’ for a certain period of time, which will typically be between one and five years, depending on your lender and your own preferences.
The key advantage of these kinds of loans is certainty. Interest rates can rise or fall at any time, but if you lock in a fixed rate, then you are guaranteed that your repayments will stay the same month to month, no matter what. In these uncertain times, the knowledge that your payments will remain consistent could be appealing.
If you’re thinking about a home loan with a fixed rate, Canstar has considered 75 providers across our database to find the ones that offer outstanding value to customers.
How are home loan lenders assessed?
Canstar’s Fixed Rate Home Loan Award uses a methodology that compares home loan providers based on the performance of their fixed rate products in our Home Loan Star Ratings.
Providers in each category are assessed across two consumer profiles (Owner Occupier and Investor) and five fixed rate terms (one, two, three, four and five years). Canstar’s Fixed Rate Home Loan Award is given to the providers who offer consumers the strongest combination of products across these variables.
This year, Canstar has recognised Award-winning lenders in three categories –— Banks, Customer-Owned Banks and Non-Banks. The Customer-Owned Banks category recognises providers such as mutual banks, credit unions and building societies, while Non-Banks recognises lenders that are not authorised deposit-taking institutions.
Each provider is given separate scores for its pricing and home loan features. The price score is determined by calculating the total cost of a $350,000 home loan with a loan-to-value ratio (LVR) of 80%, including:
- interest charges (based on the six-month historical average rate available for the product)
- upfront, ongoing and discharge fees (e.g. application fees, monthly account-keeping fees etc.)
- at least one rollover (extension) of the fixed-rate period, including any fees incurred
- 60 days worth of interest costs after the product reverts to a standard variable rate
The features score is determined by taking into account more than 170 product features across six categories, which correlate to the customer’s journey through the life of the loan. These categories, and some of the considerations, include:
- Research: What information is available online from the provider regarding its home loans?
- Application: What application channels are available? Does the provider offer pre-approval? What types of security will the provider accept?
- Management: What repayment options are available? Does the provider offer an offset account or a redraw facility on its home loans? Does the provider offer online self-service facilities?
- Variation: What options does the provider offer for splitting or switching its home loans? Can you keep the same home loan if you move house?
- Support: What customer support facilities does the provider offer?
- Discharge: How easy is it to close the home loan, are the discharge fees waived if the loan reaches full term?
Who are the Award winners for 2021?
UBank has retained its position as Bank Of The Year in Canstar’s Fixed Rate Home Loan Awards, while Greater Bank and Tic:Toc are Award winners in the Customer-Owned Bank and Non-Bank categories respectively.
Bank of the Year – Fixed Rate Home Loan – UBank
UBank has won the Bank of the Year Award for 2021, and its performance continues to be strong across all categories considered. Although they don’t offer two- or four-year fixed home loans, UBank leads in the remaining three terms for both owner occupiers and investors.
UBank received a 5-Star rating in all the consumer profiles considered as part of our research, which is a testament to its strength as a fixed rate lender. One stand-out example was seen when we considered a one-year fixed term principal and interest loan, for which UBank is offering rates as low as 1.79% (comparison rate 2.32%) at the time of writing.
Customer-Owned Bank of the Year – Fixed Rate Home Loan – Greater Bank
Greater Bank has won the Award for Customer-Owned Bank in 2021, and is a particularly strong performer in the area of fixed rate lending. For owner occupiers seeking a low rate on one to three-year terms, and investors seeking a low rate across one to two years, Greater Bank is a top performer, with rates lower than 2% in all of these categories at the time of writing.
Greater Bank is also the market leader in this category for five-year fixed rate home loans.
Non-Bank of the Year – Fixed Rate Home Loan – Tic:Toc
Tic:Toc’s consistently strong performance has seen it win the Award for Non-Bank of the Year in 2021, after taking out second place last year. Tic:Toc offers competitive one to three-year fixed home loans, and has an average historical interest rate lower than 1.9% across one and two-year fixed terms.
Cover image source: BalanceFormCreative/Shutterstock.com
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This content was reviewed by Sub Editor Jacqueline Belesky and Finance and Lifestyle Editor Shay Waraker as part of our fact-checking process.
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