The easiest way to lock in your home loan rate

A fixed rate home loan locks your interest rate for a set period, usually between one and five years.

That means your repayments stay the same regardless of what happens to variable rates during that time. You gain certainty, which can make budgeting more straightforward, especially if rates are rising or if your income is predictable and you want to avoid surprises. But you also lose flexibility. Most fixed rate products restrict extra repayments, don't offer offset accounts, and charge break costs if you need to exit early.

The decision to fix depends on your tolerance for rate movement, your need for features like offset, and how long you plan to stay in the loan. It's not about predicting where rates will go. It's about deciding whether certainty or flexibility matters more to you right now.

How a fixed interest rate home loan works

You choose a fixed rate period at the time you apply, and the lender locks in the rate for that term. Your repayments are calculated on that fixed interest rate and remain constant until the fixed period ends. At the end of the term, your loan typically reverts to the lender's standard variable rate unless you proactively refinance or negotiate a new fixed term.

Most lenders offer fixed terms of one, two, three, four or five years. Some offer longer terms, but these are less common. During the fixed period, your principal and interest repayments are set. If you're on an interest-only arrangement, your interest component is locked but you're still not paying down the principal.

Consider a buyer who locks in a three-year fixed rate at 5.8% on a $500,000 loan. Their monthly repayment is around $2,950. Six months later, variable rates drop to 5.2%, and their friends with variable loans are paying closer to $2,750 per month. The buyer is locked in and can't benefit from the rate fall without paying break costs. But if rates had instead risen to 6.5%, they'd be paying $450 less per month than someone on a variable product. The outcome depends entirely on rate movement during the fixed period, which is why fixing works when you value certainty over potential savings.

What you give up when you fix your rate

Most fixed rate home loan products don't allow offset accounts. That means any savings you hold in a transaction or savings account won't reduce the interest charged on your loan. If you're used to parking your salary in an offset and reducing your interest daily, switching to a fixed loan removes that advantage.

Extra repayments are also restricted. Some lenders allow up to $10,000 or $20,000 in additional repayments per year during a fixed term, but many don't allow any at all. If you receive a bonus, an inheritance, or sell an asset and want to pay down your loan, you may not be able to do so without triggering break costs.

Portability can also be limited. If you sell your property and want to take the loan to a new purchase, some lenders allow this without penalty, but others treat it as a discharge and apply break costs. If you're planning to move within the fixed period, check the portability terms before locking in.

Fixed rate break costs and how they're calculated

Break costs apply when you pay out or significantly alter a fixed rate loan before the end of the fixed term. They compensate the lender for the difference between the rate you locked in and the rate the lender can now earn by re-lending that money.

If you fixed at 6.0% for three years and want to exit after one year when the equivalent two-year fixed rate has fallen to 5.0%, the lender has lost the opportunity to earn that higher rate for the remaining two years. The break cost is calculated on that difference, applied to your outstanding loan balance, and discounted to present value.

Break costs are highest when rates have fallen since you fixed. If rates have risen, the break cost may be zero or minimal. Lenders are required to provide an estimate of break costs before you proceed with a discharge or refinance, but the final amount is calculated on the day of settlement and can change with rate movements.

In our experience, borrowers underestimate how quickly break costs accumulate when rate differences are even half a percent across a large loan balance. A $400,000 loan with two years remaining on a fixed term and a 1.0% rate differential can attract break costs of $7,000 to $9,000. If you're refinancing to save 0.3% per year, those break costs can take several years to recover.

Split loans and how they balance certainty with flexibility

A split loan divides your total borrowing into two portions: one fixed, one variable. You might fix 50% of your loan for three years and leave the other 50% on a variable rate with an offset account. That way, you lock in some repayment certainty while keeping access to offset benefits and the ability to make extra repayments on the variable portion.

Splits are common among borrowers who want protection from rate rises but don't want to lose all flexibility. The variable portion can absorb your extra repayments, and the offset account attached to that portion continues to reduce your interest.

You can split in any proportion. Some borrowers fix 70% and leave 30% variable. Others do the reverse. The right mix depends on how much certainty you need and how much cash flow flexibility you want to preserve. If you're expecting irregular income or lump sums, a larger variable portion makes sense. If your income is stable and you prefer predictable payments, a larger fixed portion may suit you.

Most lenders allow you to set up a split loan at the time of application or when refinancing. Some lenders charge a small fee to establish the split, but many don't. You can also choose different fixed terms for multiple portions if you want to stagger your refix dates, though this adds complexity and isn't necessary for most borrowers.

When fixing your rate makes sense

Fixing suits borrowers who value repayment certainty and don't need offset or extra repayment features. If you're on a stable salary, have minimal savings outside super, and want to know exactly what your mortgage will cost each month, a fixed rate can remove one variable from your budget.

Fixing also makes sense if you're at the limit of your serviceability. Lenders assess your ability to repay at a rate at least 3.0 percentage points above the loan product rate. If you're borrowing close to your maximum and a rate rise would push your repayments beyond what you can afford, locking in a fixed rate protects you from that risk during the fixed period.

It's less suited to borrowers who plan to sell within the fixed term, expect to receive lump sums they want to put toward the loan, or rely on offset accounts to manage tax or cash flow. If any of those apply, a variable loan or a split structure will likely serve you more effectively.

What happens when your fixed term ends

At the end of the fixed period, your loan automatically reverts to the lender's standard variable rate unless you take action. The revert rate is almost always higher than the current discounted variable rates offered to new customers, sometimes by 0.5% to 1.0% or more.

You have three options. You can negotiate a new fixed term with your current lender, switch to a discounted variable product with the same lender, or refinance to a new lender. Most borrowers don't proactively manage this transition and end up on the revert rate for months or even years, paying more than they need to.

Set a reminder three months before your fixed term ends. That gives you time to compare current home loan rates, speak with your broker, and either negotiate with your lender or start a refinance. If you're planning to refinance, allow at least six weeks for the application, valuation and settlement process.

If you're happy with your lender and they offer a competitive rate to re-fix or move to variable, staying put can save you the time and cost of switching. But if their rates aren't competitive, refinancing to a new lender is often worth the effort, especially on loan balances above $300,000 where even a 0.3% difference adds up over time.

Comparing fixed and variable home loan rates

Fixed rates and variable rates are priced differently. Variable rates reflect the lender's current cost of funds and their margin. Fixed rates are priced off wholesale funding markets and reflect the lender's expectation of where rates will be over the fixed term.

That means fixed rates can be higher or lower than variable rates depending on market conditions. When the market expects rates to rise, fixed rates are usually higher than variable. When the market expects rates to fall, fixed rates can be lower. Comparing the two at a single point in time doesn't tell you which is the right choice. You need to think about what you're trying to achieve and what you're willing to give up.

If you're comparing home loan options and trying to decide between fixing and staying variable, focus on the features you'll actually use. If you have savings to offset and want to make extra repayments, a variable loan with a linked offset account will usually deliver lower effective interest over time. If you don't use those features and want stable repayments, fixing removes the risk of rate rises without costing you functionality you weren't using anyway.

You can access home loan options from a wide panel of lenders when you work with a broker. That gives you visibility across different rate structures, fee arrangements, and loan features so you can make an informed comparison rather than relying on advertised rates from a single lender.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, show you what's available across the lender panel, and help you choose a structure that fits your circumstances and your plans for the next few years.

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