If you’re a homeowner in Australia (and even if you’re not), you will definitely have heard about our rising interest rates over recent months. It’s not been an easy time to be a homeowner, or an aspiring homeowner for that matter. And many of us who are faced with rising costs related to home ownership are looking at all our options.

Of course, as a first step you might look at fixed rate mortgage loans. They’re a great option because they let you know exactly what you’ll be paying each month without fear of the interest rate going up. But what about when the fixed-rate period comes to an end. You might be left in a worse position than before.

That may have some borrowers wondering about longer-term fixed rate home loans. What about 30 year fixed mortgage rates, for example? This is something that’s quite common in the US and overseas. But here in In Australia, they simply aren’t an option.

Why not? Keep reading to find out.

Why don’t 30 year fixed mortgage rate loans exist in Australia?

When it comes to understanding why longer term fixed rate mortgages don’t exist in Australia, let’s start with the basics.

What are fixed rate home loans?

For novice borrowers, the world of home loans can be a very confusing and overwhelming place. LMI, redraw, offset – you may feel like you need a dictionary just to achieve a base-level understanding. But when it comes to mortgages they can be categorised into two key categories – fixed and variable.

Fixed home loans allow you, as the borrower, to lock in a set interest rate for a particular length of time. This gives you peace of mind because you know exactly what your repayments will be in the short term. And you can avoid any rate rises in the meantime as well. On the other hand, if interest rates do fall, you might be stuck with a higher interest rate than you might otherwise.

What are variable rate home loans?

Variable home loans, on the other hand, can fluctuate based on market movement. This can be a good thing or a not-so-good thing for a borrower. If the cash rate is rising – as it is right now – then you may be stuck seeing your costs going up each month. But if the rates are falling then you might get a bit of a windfall instead.

Fixed rate home loan terms

When it comes to fixed rate loan terms in Australia, then tend to be offered for a short period of time. The most common terms being two-, three- and five-year terms. Once the fixed period ends, the borrower will have to adjust their repayments according to the current interest rate.

There are a small number of Australian lenders that do in fact offer fixed rates for up to 10 years. However, the rates are typically so high that it’s simply not in your best interests to do so.

What are 30 year fixed mortgage rates?

In other countries, such as the USA, there are longer mortgage options. This includes 30 year fixed mortgage rates. As the name suggests, this means that borrowers can lock in an interest rate for a 30-year period. For borrowers who crave security and like to budget and plan ahead, a 30 year fixed mortgage rate might be the perfect loan option for them.

Why doesn’t Australia have 30 year fixed mortgage rates?

So why doesn’t Australia offer borrowers 30 year fixed mortgage rates if other countries like the US does? Well, there are a number of reasons.

Risks for lenders 

A key reason why lenders don’t offer 30 year fixed mortgage rates in Australia is because we don’t have a well-developed secondary mortgage market. This is a space where lenders and investors buy and sell mortgages.

In the US for example, home loans are guaranteed by two government agencies – the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac). These two entities buy home loans from lenders and either hold them or repackage them as mortgage-backed securities that can be sold. Lenders then use the money from selling the mortgages to originate more loans, and the government assumes the risk for the mortgages.

But in Australia, we don’t have government entities like Fannie Mae and Freddie Mac. So this means lenders have to keep the loans on their books for the entire term. They’re therefore much more hesitant to have rates locked in for a massive 30 years. Especially in a volatile economy.

Risks for borrowers

Some say there is also a lack of demand for 30 year fixed mortgage rates from Australian borrowers. It is true that we have historically shown a preference for variable rate loans.

In addition, the longer a fixed rate period, the higher the interest rate is too. Therefore some estimate that the interest rate for a 30-year fixed loan would be too high to make it worthwhile for the borrower. Fixed loans can also make it more difficult to refinance or break your loan early, which may prove particularly challenging for a long 30-year term.

Need fixed rate advice?

We may not be able to help you find 30 year fixed mortgage rates in Australia just yet. But you can rest assured we can help you to find the right home loan for your needs. Give us a call today at Lending Loop, and let’s see how we can help!