Fixed Rates are Back in the Group Chat

Every few years the same question pops up in my inbox and in group chats:

“Should we fix our rate?”

The last round of this conversation was in 2020 and 2021, when the cash rate was almost at zero and banks were offering fixed home loans in the high 1s and low 2s. Plenty of people fixed around 1.8 - 1.9% - my commercial clients at the bank also had some very sharp fixed options in the mid-2s, but those deals were always built with more conservative assumptions. So when rates later rose, my commercial book didn't implode.

Now rates are easing from their recent highs and fixed rates are getting some attention again, the question is back.

Talking fixed rates...without the crystal ball

Here's a simple look at what fixing actually does, and what happened last time.

What actually happened last time

When people talk about the “last time everyone fixed”, three things often get confused.

1. Fixing at very low rates was not a disaster For many households, those cheap fixed rates bought a few years of breathing space. Repayments were low, and some people used that time to pay extra off or build up savings.

2. The surprise was how far and how fast rates rose afterwards When those fixed periods ended, a lot of people rolled from roughly 2% to something starting with a 5, 6 or even 7. That jump was bigger than the 3% point “buffer” lenders had been using in their assessments.

   
   

   3. Not everyone had the same experience when rates rose Households that were already stretched felt it the most. Others tightened their belts and got on with it. My commercial clients, who had been set up on more cautious assumptions, moved through the change with some discomfort - but no disasters.

   
   

So the tale isn't “fixing was a mistake”. It's that rates moved further than almost anyone had pencilled in...including those making the rules!

What fixing can do for you

The upsides:

• Certainty Your repayments are locked in for the fixed period. handy if you have school fees, business costs or other commitments and you like knowing your monthly number.

• Short term protection if rates rise If rates jump during your fixed term, your repayment does not. That is what happened for people who fixed cheaply during COVID. They were insulated while variable rates climbed.

• Emotional calm Some people just like knowing where they stand. There's value in that, as long as you understand the trade-offs.

The trade-offs:

• Less flexibility Fixed loans usually limit extra repayments and redraw and can come with break costs if you want to sell, refinance or restructure early.

• You miss out on cuts while you are fixed If you fix at 5% and, a year later, new variable rates are in the 4s, you will not automatically get those lower rates until your fixed period ends.

• Timing risk Fixing is a timing decision, whether you like it or not. You only know if you picked the “perfect” time with hindsight. No one has been consistently right on that, including the experts.

  
  

What about commercial clients?

For business and commercial borrowers, fixed rates are one lever among many, not the whole plan.

The focus there is usually on:

• Matching the loan term to the asset or the lease

• Stress testing cash flow at more normal interest rates, not just the very low ones

• Making sure the numbers work beyond the fixed period, not only during it

That kind of conservative planning is exactly why my commercial clients came through the rate rises in one piece. They still felt the higher cost of money, but the lending itself was not reckless.

How I handle the “should we fix” question:

When clients ask about fixing, I don't pretend to have a crystal ball. What we do instead is very simple.

1. We talk about your next few years Upgrading, downsizing, renovating, starting a business, kids leaving home, helping adult children, retirement plans. All of that matters.

2. We look at structure and flexibility How much of the loan, if any, should be fixed. How much should stay variable. What that means for extra repayments, offset and redraw.

3. We walk through the pros and cons in plain language So you know, in advance, what you gain from fixing and what you give up.

4. You decide, I put it in place If you want to fix all of it, we do that. If you want to fix part and leave part variable, we do that. If you want to stay fully variable, that is fine too. My job is to make sure you understand the trade-offs before you choose.

   
   

Final thought:

Fixing isn't good or bad on its own. It's just one way of managing your lending.

The last few years showed that rates can move further and faster than anyone expects, and that the buffer is helpful but not a guarantee. What matters now is not copying what your neighbour did, but looking at your own numbers, your own plans and your own appetite for risk, then choosing a structure you can live with. And as always, chat with your accountant who will likely have a greater understanding of your financial position.

General information only. Not legal, tax or financial advice. It does not take your personal circumstances into account. Get personalised advice before changing your loan structure.