When to Pick Fixed Rate Loans and What to Expect

What You're Really Paying When You Fix Your Rate

A fixed rate loan locks your interest rate for a set period, usually between one and five years. The application and settlement costs are the same as any other home loan, but the ongoing fees and exit terms differ. In Hobart, where the market has shifted between steady and unpredictable over recent cycles, many first home buyers fix at least part of their loan to create certainty around repayments while they adjust to homeownership.

The main costs to consider are your application fee, valuation fee, settlement fee, and any ongoing account-keeping charges. After that, the real financial question is what happens if you need to break the fixed term early or want to make extra repayments above the limit set by your lender.

Application and Settlement Fees for Fixed Rate Loans

Most lenders charge an application fee somewhere between $300 and $600. Some waive it entirely. A valuation fee usually sits between $200 and $400, though this depends on the property type and location. Settlement fees range from $150 to $300. These costs apply whether you choose a fixed or variable loan, so they're not unique to fixing your rate.

Consider a buyer purchasing a unit near the Hobart waterfront. The application fee was $400, the valuation came in at $250, and the settlement fee was $200. Total upfront cost before the deposit and stamp duty was $850. That figure would have been identical if the buyer had chosen a variable rate loan instead. The difference with a fixed rate loan shows up later, in the rules around extra repayments and early exit.

Ongoing Account Fees During the Fixed Period

Some lenders charge a monthly account-keeping fee, typically between $10 and $15. Over a three-year fixed term, that adds up to between $360 and $540. Other lenders don't charge any ongoing fee at all. It's worth comparing not just the interest rate but also whether the loan includes a monthly fee, because that cost compounds over time.

Fixed rate loans often don't come with an offset account, which means you miss out on the ability to park your savings against the loan balance and reduce the interest you're charged. Some lenders offer a redraw facility instead, which lets you access any extra repayments you've made above the minimum, but most fixed rate products cap how much extra you can repay each year without penalty. The cap is usually between $10,000 and $30,000 depending on the lender.

Break Costs and Early Exit Penalties

If you sell your property, refinance, or pay off your loan in full before the fixed term ends, you may be charged a break cost. This fee compensates the lender for the difference between the rate you locked in and the rate they can now lend that money at. If rates have dropped since you fixed, the break cost can be substantial. If rates have risen, the break cost might be zero or close to it.

Break costs are calculated using a formula that takes into account the remaining term, the difference between your fixed rate and current wholesale rates, and your remaining loan balance. A buyer who fixed at a higher rate two years ago and now wants to refinance could face a break cost of several thousand dollars if rates have since fallen. The lender will provide a payout figure that includes this cost when you request it.

This is one reason many first home buyers in Hobart choose to split their loan, fixing part of it for certainty and keeping the rest variable for flexibility. That way, if circumstances change, only a portion of the loan is subject to break costs. You can read more about getting loan pre-approval before committing to a particular loan structure.

Annual Extra Repayment Limits

Most fixed rate loans allow you to make extra repayments up to a certain amount each year without penalty. The limit varies by lender, but $10,000 per year is common. If you exceed that limit, you'll be charged a fee or added interest to cover the difference.

For a buyer who receives a tax refund or work bonus and wants to pay down the loan faster, this limit can feel restrictive. A variable rate loan typically allows unlimited extra repayments without penalty, which is why some buyers prefer to keep at least part of their loan variable even if they fix the rest. The split strategy gives you the stability of a fixed rate on one portion and the flexibility of a variable rate on the other.

Comparing Fixed and Variable Rate Loan Costs

The headline interest rate is only part of the picture. A fixed rate might be slightly higher than the variable rate at the time you apply, but it won't change for the fixed period. A variable rate might start lower, but it can move up or down with the market.

In Hobart, where property prices have remained more stable than in Sydney or Melbourne, the decision often comes down to how much certainty you want around your repayments. If your income is steady and you're comfortable with potential rate rises, a variable loan might suit you. If you want to lock in your repayments and plan your finances without worrying about rate movements, a fixed loan makes sense.

Some buyers use the Australian Government 5% Deposit Scheme to enter the market sooner, then fix their rate to avoid the risk of rising repayments while they build equity. The scheme allows eligible first home buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance, which can reduce upfront costs significantly.

How Fixed Rate Loans Affect Borrowing Capacity

Lenders assess your ability to repay a loan using a serviceability buffer, which means they test whether you could still afford repayments if interest rates rose by a certain margin. For a fixed rate loan, some lenders will assess you at the actual fixed rate rather than applying the full buffer, which can increase how much you're allowed to borrow.

This can be useful if you're stretching to afford a property in suburbs like Sandy Bay or Battery Point, where prices sit higher than the Hobart median. However, once the fixed term ends, your repayments will revert to the variable rate at that time, which could be higher than the rate you locked in. It's important to make sure you can still afford the loan if rates rise after the fixed period expires.

You can check your borrowing capacity before applying to understand how much you're likely to be approved for under different loan structures.

Refinancing Out of a Fixed Rate Loan

If you want to refinance to a better rate or switch lenders before your fixed term ends, you'll need to factor in the break cost. Some buyers wait until the fixed term is close to expiring, then start the refinancing process so the new loan settles just after the fixed period ends. That way, they avoid the break cost entirely.

Others decide the benefit of refinancing outweighs the break cost, especially if they can secure a significantly lower rate or access features like an offset account that weren't available on their original fixed loan. A broker can calculate whether refinancing makes financial sense once you know the exact break cost and the new rate you're eligible for. You can read more about home loan refinancing and when it's worth considering.

Choosing the Right Fixed Term Length

Fixed terms usually range from one to five years. Shorter terms give you more flexibility to refinance or sell without a large break cost, but they also mean you'll need to decide on a new rate or loan structure sooner. Longer terms lock in your rate for more of your loan, but they also lock in the restrictions around extra repayments and early exit.

In Hobart, where the market has been relatively stable compared to other capital cities, many first home buyers choose a three-year fixed term as a middle ground. It provides certainty through the early years of homeownership without committing to a five-year lock-in. If you're planning to stay in the property long-term and your income is predictable, a longer fixed term can work well. If you think you might sell, upgrade, or refinance within a few years, a shorter term or a split loan structure might suit you better.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fixed and variable options available, explain the exact fees for each lender, and help you structure a loan that fits your budget and plans without locking you into terms you'll regret later.

Frequently Asked Questions