What are Fixed Rate Loan Features for First Home Buyers?

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

That means your repayments stay the same during the fixed term, regardless of what the Reserve Bank does with rates. For first-timers, that certainty makes budgeting straightforward. You know exactly what will leave your account each fortnight or month, and you can plan around it.

What You Can and Cannot Do During a Fixed Period

Most fixed rate loans come with restrictions. You typically cannot make extra repayments beyond a small annual allowance, often capped at $10,000 or $20,000 depending on the lender. Some lenders allow no extra repayments at all. If you exceed the limit, you may be charged a fee.

You also cannot access an offset account with most fixed rate products. An offset account links to your loan and reduces the interest you pay by offsetting your savings balance against your loan balance. Variable rate loans almost always offer this feature, but fixed rate loans rarely do. A small number of lenders offer a partial offset or a redraw facility, which allows you to withdraw extra repayments you have made, but redraw access is often restricted during the fixed term.

If you need to exit the loan early, either to refinance or because you are selling the property, you will likely face break costs. These costs compensate the lender for the difference between the fixed rate you agreed to and the current market rate. Break costs can be substantial, particularly if rates have fallen since you locked in your rate.

How Fixed Rates Work Alongside First Home Buyer Schemes

You can combine a fixed rate loan with government support programs. The Australian Government 5% Deposit Scheme allows eligible buyers to purchase with a deposit as low as 5% without paying lenders mortgage insurance. That scheme works with both fixed and variable rate loans, and many of the 31 participating lenders offer fixed rate options.

In Victoria, first home buyers receive a full stamp duty exemption on properties up to $600,000 and a sliding scale concession up to $750,000. That concession applies regardless of whether you choose a fixed or variable rate loan. You can also access the Victorian First Home Owner Grant of $10,000 for new homes valued up to $750,000. These state incentives do not restrict your choice of loan structure.

Werribee sits within the Melbourne metropolitan area, so the property price cap for the 5% Deposit Scheme is $950,000. Most properties in Werribee fall comfortably within that cap, making the scheme a practical option for local buyers.

Split Loan Structures and Why They Matter

A split loan divides your borrowing between a fixed portion and a variable portion. You might fix 60% of the loan and leave 40% variable, or choose any other split that suits your circumstances.

The fixed portion gives you repayment certainty. The variable portion gives you flexibility. You can make unlimited extra repayments on the variable portion, and you can link an offset account to that part of the loan. If you need to refinance or sell before the fixed term ends, the break costs apply only to the fixed portion, not the entire loan.

Consider a buyer purchasing a townhouse in Werribee under the 5% Deposit Scheme. They borrow the balance after their deposit and fix half the loan at the prevailing rate for three years. The other half remains variable. They can make extra repayments from their offset account linked to the variable portion, reducing interest on that half of the loan. If interest rates rise during the fixed period, they benefit from the locked rate on half the loan. If rates fall, they can refinance the variable portion without penalty or simply enjoy the lower rate on that portion immediately.

This approach works particularly well for buyers who expect irregular income, such as bonuses or tax refunds, and want the option to pay down the loan faster without penalty. It also suits buyers who value certainty but do not want to lock themselves into a structure that penalises them for getting ahead.

Redraw Facilities and How They Differ from Offset Accounts

A redraw facility allows you to withdraw extra repayments you have made on your loan. It is not the same as an offset account. With an offset account, your savings sit in a separate transaction account and reduce the interest charged on your loan without being locked in. With redraw, the extra payments go directly into the loan, reducing the principal, and you request access to those funds if you need them.

Most fixed rate loans do not offer redraw, and when they do, access is often restricted. Some lenders limit how often you can redraw. Others charge a fee for each redraw transaction. A small number of lenders freeze redraw entirely during the fixed period, meaning you cannot access extra payments until the fixed term ends.

Variable rate loans almost always offer unrestricted redraw or an offset account. If you know you will want to access extra payments regularly, a variable rate loan or a split loan structure makes more sense than a fully fixed loan.

What Happens When Your Fixed Rate Ends

When the fixed period expires, your loan automatically reverts to the lender's standard variable rate unless you take action. That revert rate is almost always higher than the advertised variable rate offered to new customers. The difference can be significant, sometimes 0.50% to 1.00% or more.

Most borrowers refinance or negotiate a new rate before the fixed term ends. Refinancing to a new lender often gives you access to a lower rate and potentially better loan features, such as an offset account or unrestricted extra repayments. Some lenders will negotiate a retention rate if you contact them before the fixed term expires, particularly if you have a strong repayment history and equity in the property.

If you are coming off a fixed rate and are unsure whether to refix, switch to variable, or refinance entirely, the decision depends on your current financial position, your appetite for rate risk, and whether you need access to features like offset or redraw. It is worth reviewing your options at least three months before the fixed term ends, as refinancing or switching products can take several weeks to complete.

Interest Rate Discounts and Ongoing Rate Reviews

Fixed rates are typically not discounted in the same way variable rates are. Lenders offer a fixed rate for a set term, and that rate is generally not negotiable. You may receive a small discount if you have a large deposit or if you are borrowing through a mortgage broker with access to better rates, but the margin for negotiation is narrower than with variable loans.

Variable rates, by contrast, are often heavily discounted from the lender's standard rate, and those discounts can be renegotiated over time. If you fix your rate and market rates fall, you remain locked into your original rate unless you pay break costs to exit early. That lack of flexibility is the trade-off for repayment certainty.

If you are considering a fixed rate, compare the fixed rate offered to the variable rate and calculate how much the certainty costs you. Sometimes the fixed rate is only marginally higher than the variable rate, making it a reasonable choice. Other times, the fixed rate is significantly higher, and you need to decide whether the certainty justifies the additional cost.

Call one of our team or book an appointment at a time that works for you. We will walk through the fixed rate options available, explain how they fit with the government schemes you are eligible for, and help you structure a loan that gives you the right balance between certainty and flexibility.

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