How to Use Fixed Rates and Offset Accounts Together

A fixed rate locks in your repayments, and an offset account cuts the interest you pay on the loan.

The two home loan features work differently, and which one suits you depends on how much certainty you want and how much spare cash you hold. If you're a Norman Gardens local weighing up a new loan or a refinance, this guide walks through how each one works and when they can sit side by side.

How Does a Fixed Rate Home Loan Work?

A fixed rate home loan holds your interest rate at one level for an agreed period, so your repayments stay the same during that time. When the period ends, the loan usually moves to a variable rate unless you choose a new fixed term.

The appeal is certainty. If your household budget is tight, knowing the exact repayment each month makes planning easier. The trade-offs matter too. Many lenders limit extra repayments on fixed loans, and if you pay the loan out or switch lenders early you may face break costs. Some lenders also don't offer a linked offset account on a fixed loan, so check this before you apply.

If your fixed term is close to ending, our fixed rate expiry page explains your options.

How Does an Offset Account Reduce Your Interest?

An offset account is a transaction account linked to your home loan, and the balance in it is subtracted from your loan balance when interest is calculated. The more you keep in the account, the less interest you pay.

As an example, take an illustrative owner occupied home loan of $500,000 at 6.75% p.a. Interest on the full amount is about $33,750 a year. If $50,000 sits in a linked offset account, interest is worked out on $450,000, which is about $30,375 a year. That is roughly $3,375 less interest, or about $281 a month. This assumes the offset balance stays at $50,000 all year and that the rate does not change. The rate used here is for illustration only.

The outcome is that your repayment stays the same, but more of it goes towards the loan balance instead of interest. You also keep full access to your cash, so the money is still there for emergencies or a new ute.

The main trade-off is cost. Loans with an offset account can carry a higher rate or an annual package fee, depending on your lender. If you only keep a small balance in the account, the fee could outweigh the interest saved. A small offset balance may suit a different loan structure.

You can test your own numbers with our loan repayments calculator.

Can You Have a Fixed Rate and an Offset Account Together?

Often you can, through a split loan, which divides your loan into a fixed portion and a variable portion. Your lender may attach the offset to the variable portion only, so check how each lender handles this.

Consider a buyer in Norman Gardens who borrows $500,000 and wants some certainty without losing flexibility. They split the loan into $300,000 fixed and $200,000 variable, with $40,000 in the offset account linked to the variable part. The buyer wants steady repayments on most of the loan, and keeps a cash buffer they can reach at any time.

Using the same illustrative 6.75% p.a. on the variable part, interest is worked out on $160,000 instead of $200,000. That is about $10,800 a year instead of $13,500, a difference of about $2,700. In reality a fixed rate and a variable rate are often different, so the fixed portion would be priced separately and your own figures will vary.

The outcome is that $300,000 of the loan has a known repayment during the fixed term, while the variable portion responds to the offset balance. The cost is that the fixed portion may have break costs, and extra repayments on that part may be capped. The variable portion will move if the lender changes its rate.

Fixed, Variable or Split: Which Suits Your Situation?

A fixed rate suits you if repayment certainty matters most, a variable rate with an offset suits you if you hold spare cash, and a split loan suits you if you want a bit of both.

Think about three things before you choose:

• How steady your income is over the next few years, including any seasonal or shift-based work
• How much cash you can realistically keep in an offset account
• Whether you might sell, refinance or make large extra repayments before a fixed term ends

If you plan to move within a couple of years, break costs on a fixed loan are worth weighing up. If you expect a bonus or a sale of an asset, a variable loan that lets you pay extra may be a good fit.

What Does Your Loan Structure Mean for Repayments?

Your repayment depends on your loan amount, interest rate, term and whether you pay principal and interest or interest only. Offset balances reduce the interest charged, but they don't change the minimum repayment unless your lender recalculates it.

As an illustration, a $500,000 loan at 6.75% p.a. over 30 years with principal and interest repayments comes to about $3,240 a month. Interest only repayments would be lower for a set period, but you wouldn't be paying down the balance, and the repayment would rise when the loan reverts to principal and interest over the shorter remaining term.

Lenders also assess your borrowing capacity based on your income, expenses and debts, so it helps to know your number early. Our borrowing capacity page explains how that works.

How a Local Mortgage Broker Can Help You Compare Loan Options

A mortgage broker can compare home loan products from a range of lenders and show how fixed rates, variable rates and offset accounts fit your situation. We work with people across Rockhampton, and you can read more about our mortgage broker in Norman Gardens service.

If you already have a loan, a review may show whether your current structure still suits you. Our refinancing page covers what is involved, and our home loans page outlines the options we can help with.

Call one of our team or book an appointment at a time that works for you, and we'll talk through the loan structure that suits your plans.

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