Do you know how long to fix your home loan rate?

Choosing Between One, Two, Three, or Five Year Fixed Terms

Most lenders offer fixed rate terms ranging from one to five years, with two and three year terms being the most common choices. The term you pick determines how long your interest rate stays locked, which also determines how long you're committed to that lender and those repayment conditions.

Consider a plasterer who fixes for five years at what seems like a solid rate. Two years in, rates drop by a full percentage point and they're stuck paying more than necessary. Breaking that loan early triggers break costs calculated on the difference between their fixed rate and the current wholesale rate, multiplied by the remaining term. On a loan of even moderate size, that can run into tens of thousands of dollars. On the flip side, fixing for just one year when rates are rising means you're back to variable rates sooner, and your repayments jump when that term ends.

The decision comes down to how much rate certainty you need versus how much flexibility you want to keep. Longer terms offer more protection against rate rises but less room to move if your circumstances change or if rates fall. Shorter terms give you more regular opportunities to reassess, but you lose that protection sooner.

What Happens When Your Fixed Term Ends

When your fixed period finishes, your loan automatically switches to the lender's standard variable rate unless you take action beforehand. That standard variable rate is typically higher than the discounted variable rates advertised to new customers, sometimes by half a percentage point or more.

This is when plasterers working on contract income need to pay attention. If your income has improved since you first took out the loan, you might qualify for better rates elsewhere. If it's been a lean year, you might need to stay put or consider refinancing to a lender who understands self-employed income properly. Either way, the end of a fixed term is a decision point, not something that just happens to you.

Most lenders contact you around three to six months before your fixed term ends. That window gives you time to compare what's available, assess whether your current lender will offer you a decent renewal rate, or start a refinance application if needed. Letting it roll to the standard variable rate without checking your options is leaving money on the table.

Fixed Rate Terms and Break Costs

Break costs exist because lenders fund fixed rate loans by locking in their own funding costs for that term. If you exit early, they lose the margin they were expecting and may need to reinvest that money at a lower rate. The break cost compensates them for that difference.

The calculation compares your fixed rate to the current wholesale rate for the remaining term. If your fixed rate is higher than the current wholesale rate, you pay the difference. If the current rate is higher, there's usually no break cost. The longer the remaining term, the larger the potential break cost, because the lender loses that margin for a longer period.

In practical terms, this means a plasterer who fixes for five years and wants to sell or refinance after two years could face a bill running into five figures if rates have dropped. If you're buying a property you plan to sell within a few years, or if your work circumstances might change, a shorter fixed term or a split loan structure can reduce that risk. Some lenders allow partial prepayments or offer portable loans that let you transfer the fixed rate to a new property, but those features vary between products.

Matching Your Fixed Term to Your Work Cycle

Plasterers often see income swing between busy periods and quieter months, and that variability affects how you approach fixed terms. If you're in a phase where work is steady and you want to lock in repayments you know you can manage, a two or three year fixed term gives you that certainty without tying you down for too long.

If you're planning to take on more work, buy equipment, or expand into running a plastering business with employees, you might want the flexibility of a shorter term or a variable rate that lets you make extra repayments without penalty. Variable rates and offset accounts let you park income from those big jobs and reduce the interest you pay, which you can't do on most fixed rate products.

Some plasterers we work with use a split structure, fixing part of the loan for rate certainty on essential repayments and keeping the rest variable for flexibility. That approach works well if your base income covers the fixed portion and your busier months let you chip away at the variable portion faster.

Comparing Fixed Rate Terms Across Lenders

Not all lenders price their fixed terms the same way. One lender might offer a lower rate on a two year term, while another is sharper on three or five year terms. The gap can be significant, sometimes twenty to thirty basis points, which adds up over the life of the fixed period.

When comparing, check what features you lose by fixing. Most fixed rate products don't allow extra repayments beyond a small annual limit, usually around ten thousand dollars. Some don't allow offset accounts. If you're a plasterer who invoices in chunks and needs somewhere to park that income between tax time and the next job, losing offset access can cost you more in interest than you save from a slightly lower fixed rate.

Also check the lender's standard variable rate, because that's where you'll land when the fixed term ends. A lender offering a very low fixed rate but a high standard variable rate might cost you more overall if you don't refinance at the end of the term. The full picture matters more than the headline rate.

When a One Year Fixed Term Makes Sense

A one year fixed term gives you short-term certainty without long-term commitment. It works well if you expect rates to stabilise or fall within the next year, or if your circumstances are likely to change soon.

For plasterers, this might apply if you're working on a fixed-term contract that gives you steady income now but might not be renewed. Fixing for one year locks in your repayments for that contract period, then gives you the option to reassess once the work situation is clearer. It also works if you're planning to sell the property or pay down a chunk of the loan in the near future, because the shorter term reduces your exposure to break costs.

The trade-off is that one year goes quickly. If rates rise during that period and keep rising, you're back to dealing with higher repayments sooner than someone who locked in for longer. It's a calculated risk based on your read of the rate environment and your own financial position.

Why Three Year Fixed Terms Are Common

Three year fixed terms sit in the middle of the range, offering a decent stretch of rate certainty without locking you in for the full five years. They're popular because they balance protection and flexibility reasonably well for most borrowers.

For plasterers, three years often aligns with the time it takes to build some equity in a property, establish a stronger income history, and potentially qualify for better loan terms. If you're self-employed and building up your business, three years gives you time to show consistent income growth without committing to a rate for the full five years.

Three year terms also tend to be competitively priced by lenders, because they're a common product and there's more competition in that space. You'll often see sharper rates on three year terms than on four or five year terms, simply because more lenders are fighting for that business.

The risk is the same as any fixed term: if rates drop significantly in year two, you're stuck for another year unless you're willing to pay break costs. But the exposure is less than a five year term, and the certainty is more than a one or two year term. It's a compromise, but a deliberate one.

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