With interest rates being the talk of the town for the past couple of years, it’s time to dive into the age-old question: Fixed rates or variable rates? Let’s break it down and see if we’re starting to witness a fixed rate comeback.
Fixed vs. Variable: What’s the Difference?
Before we get into it, let’s clarify what these two types of rates are. A fixed rate is when you “lock in” your interest rate for a set term, usually between 1 to 5 years. This means your rate won’t budge, no matter what happens in the market during that term—it’s rock-solid and predictable.
On the other hand, a variable rate moves up and down based on market changes—most commonly when the Reserve Bank of Australia (RBA) tweaks their target Cash Rate. And if you’ve been following the news, you’ll know we’ve had 13 of these changes since May 2022! Variable rates usually come with added perks, like the ability to make extra repayments and features like an offset account (which lets you use your savings to reduce your loan’s interest charges).
A Blast from the Past: The Pandemic Fixed Rate Boom
During the pandemic, fixed rates were the hot ticket. In fact, they peaked at around 46% of all new loans—thanks in large part to rock-bottom rates of below 2% (ABS). It was one of the few silver linings of the global pandemic, and people rushed to lock in those historically low rates while they could.
Fast forward to today, and things look a bit different. At the moment, only about 2% of new borrowers are opting for fixed rates (ABS). Hardly a resurgence…yet! So why are people staying away?
The Wait-and-See Approach
Most borrowers are sticking with variable rates in the hope that, after a long stretch of higher rates, a cut from the RBA is on the horizon (fingers crossed!). With rates still in restrictive territory, locking in at current fixed rates—much higher than what we’ve seen in years past—doesn’t seem that appealing.
So, What’s Changing?
Over the past month, we’ve noticed a flicker of life in the fixed rate space. While most variable rates for owner-occupier loans are sitting at 6% or more, some lenders have begun offering more competitive fixed rates, particularly for 2 and 3-year terms. One example? A 2-year fixed rate at 5.59%, paired with a tempting $3,000 cashback – and more lenders are jumping on board with similarly competitive offers by the week.
Is Now a Good Time to Fix?
The main perk of a fixed rate is certainty. If you’re someone who values knowing exactly what your repayments will be for the next few years, this could be the right move for you. Locking in a lower fixed rate could help you budget and plan with confidence—no surprises.
However, it’s important to remember that what you gain in certainty, you might lose in flexibility. Most fixed rate loans come with restrictions on things like offset accounts, and if you decide to break your fixed rate contract early, you could face “break costs.” And let’s not forget, if rates drop below your locked-in rate, you won’t benefit from the savings.
Need Some Guidance?
Not sure if a fixed rate is the right choice for you? Or maybe you’re considering a combination of both fixed and variable? Our team at AP Group is here to help. Whether you want to chat about rates or explore your options, we’re ready to guide you through it.
Feel free to get in touch—let’s make sure your loan works for you!
Written by Andrew Whelan, General Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
When Andrew Whelan is not out pedalling his bike or looking after his two marvellous kids, he’s pedalling through pharmacy finance and strategy development.
Having been with AP Group since the beginning, Andrew has more than a decade experience in pharmacy and is an asset to the sales and finance division. He’s a numbers wizard, people person and sustainability champion — leading AP Group to achieve official Carbon Neutral Certification with Climate Active.
Before AP Group, Andrew spent more than a decade in the telecommunications and media industry including 7 years at Telstra in a variety of senior management roles and 3 years in the United Kingdom managing the commercial function for the British Sky Broadcasting — a time where it was the fastest growing broadband provider in the UK.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.