Beginner's guide to fixed rate home loans

What a fixed rate home loan actually locks in

A fixed rate home loan holds your interest rate steady for a set period, usually between one and five years. Your repayments stay the same regardless of what the Reserve Bank does during that time.

That predictability appeals to buyers in The Range who want to know exactly what they'll pay each fortnight. If you're stretching to buy on one of the elevated blocks near the Botanic Gardens or committing to a renovation on a character home, fixed repayments remove one layer of uncertainty. The trade-off is reduced flexibility. Most fixed rate products limit extra repayments to around $10,000 to $30,000 per year without penalty, and you can't link an offset account to reduce interest. If rates fall, you stay locked at the higher figure until your fixed term ends.

How the fixed period works in practice

You choose the length of time you want your rate fixed when you apply. One, two, three, four, and five-year terms are standard across most lenders. Once the fixed period ends, your loan automatically switches to the lender's standard variable rate unless you arrange to refix or refinance.

Consider a buyer who locked in a three-year fixed rate in late 2022 at 4.89% on a $450,000 loan. Their repayments stayed at $2,380 per fortnight through several rate rises. When the fixed period expired, the loan reverted to a variable rate of 6.24%, pushing fortnightly repayments to $2,740. They refinanced instead, securing a new fixed rate of 5.99% with another lender and avoiding the jump to the standard variable product.

When fixed rates suit The Range buyers

Fixed rates make sense when you value repayment certainty over flexibility. If your income is predictable but tight, or if you're buying at the top of your borrowing capacity, locking in removes the risk of rate rises forcing you to cut spending elsewhere.

The Range attracts a mix of young families, medical professionals, and retirees downsizing from rural properties. Families with childcare costs and a single income often fix to protect their budgets. Professionals with variable income, like locum doctors at the Base Hospital, sometimes prefer variable rates so they can make lump sum repayments when work picks up. Retirees on fixed pensions often fix the entire loan amount to match their income structure.

What you give up when you fix

Most fixed rate products cap additional repayments at $10,000 to $30,000 per year without triggering break costs. Go over that limit and the lender charges you for the income they lose by letting you pay the loan down early. Break costs can run into thousands of dollars if rates have moved significantly since you fixed.

You also lose access to an offset account on the fixed portion of your loan. For buyers in The Range with savings sitting in transaction accounts, that can mean paying interest on money you could otherwise offset. If you receive a bonus, inheritance, or sale proceeds during the fixed period, your options for using that money to reduce interest are limited.

Split loans as a middle option

A split loan divides your borrowing between fixed and variable portions. You might fix 50% or 60% to stabilise most of your repayments, and leave the rest variable so you can make extra repayments and attach an offset account to that portion.

In our experience, buyers who expect irregular income or plan to sell an investment property within a few years often split 60% fixed and 40% variable. That structure gives them repayment certainty on the majority of the loan while keeping enough flexibility to reduce the variable portion without penalty. Lenders generally allow you to split in any proportion, and you can fix each portion for different terms if that suits your situation. For more on how this structure fits within broader home loan options, it's worth comparing how lenders structure their split products.

What happens when your fixed rate expires

About 30 to 90 days before your fixed term ends, your lender will write to you with options. You can refix at the current rate, switch to variable, or move to another lender. Most borrowers don't realise the standard variable rate their loan reverts to is often higher than the variable rate the same lender advertises to new customers.

If you do nothing, the loan automatically rolls to that standard variable product. Rates on standard variable loans can sit 0.50% to 1.00% higher than discounted variable products, which adds up quickly on a loan over $400,000. Setting a calendar reminder three months before your fixed term ends gives you time to compare rates, request a discount from your current lender, or arrange a refinance if another lender offers a lower rate.

Fixing during uncertainty versus fixing during stability

Borrowers often fix when they expect rates to rise. The problem is that lenders price fixed rates based on the same expectation, so by the time you're worried about rate rises, fixed rates have usually already moved up.

Fixed rates are priced off wholesale funding costs, not the Reserve Bank cash rate. When banks expect rate rises, fixed rates climb before variable rates do. When they expect cuts, fixed rates fall first. During periods when the Reserve Bank holds rates steady but signals future cuts, you might see fixed rates 0.50% to 0.80% lower than variable rates. Those periods offer genuine value if you're comfortable locking in, even though rates might fall further.

How we help Range buyers decide

Deciding between fixed, variable, or split depends on how much income margin you have, whether you plan to make extra repayments, and how long you expect to hold the property. We regularly see buyers fix the wrong amount or the wrong term because they focused only on the advertised rate.

Call one of our team or book an appointment at a time that works for you. We'll compare current fixed and variable offerings across the lenders we work with, run scenarios based on your income and savings plans, and structure the loan to suit how you actually live.

Frequently Asked Questions