A fixed rate home loan is where you pay the same interest rate for an agreed term, generally one to five years. Even if the Reserve Bank of Australia (RBA) increases the official interest rate, your fixed rate remains the same.
The main advantage of a fixed rate is that it allows you to budget for your monthly expenses more easily, as you know exactly how much you will be spending on your mortgage over the agreed term. The disadvantage is that if the RBA lowers official interest rates your rate remains the same, so you can end up paying more than you would have paid on a variable rate. There can also be break costs for paying out the loan during the fixed term and there are usually restrictions on making additional repayments.
