Fixed Rate Loans: 5 Things First Home Buyers Need to Know

Locking in a fixed interest rate gives you certainty, but choosing the wrong term can cost you thousands or leave you stuck when circumstances change.

Most first home buyers in Griffith focus on the rate itself and overlook the term length. A three year fixed rate might offer a lower headline rate than a one year product, but that rate applies for three full years regardless of whether the Reserve Bank cuts rates six months after you settle. The decision isn't just about the rate you see today, it's about how long you're willing to commit to that rate and what happens if you need to sell, refinance, or make extra repayments before the term ends.

How Fixed Rate Terms Work in Practice

A fixed rate term is the period during which your interest rate cannot change. One, three and five year terms are the most common. During the fixed period, your rate stays the same regardless of whether the Reserve Bank raises or lowers the official cash rate. Once the fixed term ends, your loan automatically reverts to the lender's standard variable rate unless you refinance or negotiate a new fixed term.

Consider a buyer purchasing in Griffith who fixes at 6.19% for three years. If variable rates drop to 5.5% twelve months after settlement, that buyer continues paying 6.19% for the remaining two years of the fixed term. The rate certainty comes at the cost of flexibility. Conversely, if variable rates rise to 6.8%, the fixed rate borrower is protected from the increase until the term expires.

Should You Choose a One, Three or Five Year Fixed Term?

Your choice depends on how stable your circumstances are and how long you expect to stay in the property. A one year fixed term suits buyers who expect income growth, plan to make lump sum repayments, or anticipate moving within a few years. The shorter term means lower break costs if you sell or refinance early. A three year term offers more rate certainty without locking you in for as long as a five year product. A five year term provides maximum protection from rate rises but comes with the highest break costs and the longest period without access to offset accounts or unlimited extra repayments.

In our experience, buyers who choose five year fixed terms often underestimate how much their circumstances can change. Job relocation, growing families, or unexpected windfalls all become complicated when you're locked into a fixed rate with significant break costs attached.

What Happens When Your Fixed Rate Expires

Your loan reverts to the lender's standard variable rate, which is typically higher than both the fixed rate you were paying and the discounted variable rates available to new customers. At that point, you have three options: stay on the standard variable rate, negotiate a new fixed or variable rate with your current lender, or refinance to a different lender.

The revert rate can be 1% to 2% higher than competitive variable rates. On a $400,000 loan, that difference adds around $4,000 to $8,000 per year in interest. Most borrowers either refinance or renegotiate within a few months of their fixed term ending. If you wait until the fixed term expires to start the refinance process, you'll be paying the higher revert rate during the application and settlement period, which can take four to eight weeks.

Can You Make Extra Repayments on a Fixed Rate Loan?

Most fixed rate loans allow extra repayments up to a capped amount, typically $10,000 to $30,000 per year depending on the lender. Payments beyond that cap trigger break costs. Unlike a variable loan with an offset account, extra repayments on a fixed rate loan usually sit in a redraw facility, which means the funds reduce your loan balance immediately but can be withdrawn later if needed.

Redraw facilities are not the same as offset accounts. If you lose your job or face an emergency, accessing funds from redraw is at the lender's discretion and may not be available if your loan is in arrears or if the lender's policy has changed. Offset accounts, which are typically only available on variable loans, keep your savings separate from the loan and accessible at any time without restrictions.

Split Loans for First Home Buyers in Griffith

A split loan divides your borrowing between a fixed rate portion and a variable rate portion. This structure lets you lock in certainty on part of your debt while keeping flexibility on the rest. A common split is 50% fixed and 50% variable, though the proportions can be adjusted to suit your priorities.

Splitting your loan gives you access to an offset account on the variable portion, lets you make unlimited extra repayments on that portion, and reduces your exposure to break costs if you need to sell or refinance early. If rates fall, the variable portion benefits immediately. If rates rise, the fixed portion provides partial protection. For first home buyers in Griffith who expect their income to increase or who want to keep some flexibility while still locking in part of their rate, a split loan often delivers the outcome they're looking for without the restrictions of a fully fixed loan.

The split loan structure does require managing two loan accounts, but most lenders automate the process so repayments are drawn from a single account. The key is deciding the right proportion to fix based on how much rate protection you want versus how much flexibility you need.

What Are Break Costs and When Do They Apply?

Break costs are fees charged by the lender if you pay out, refinance, or make extra repayments above the allowed limit during a fixed rate term. The fee compensates the lender for the difference between the fixed rate you're paying and the rate the lender can now earn by lending that money elsewhere. Break costs are highest when you exit a fixed loan early and market rates have fallen since you locked in your rate.

Calculating break costs is complex and varies by lender, but the formula generally considers the remaining term, the amount being repaid early, and the difference between your fixed rate and current wholesale rates. A buyer who fixed at 6.5% for five years and wants to refinance two years later when rates have dropped to 5.8% may face break costs of $10,000 or more on a $400,000 loan. If rates have risen since you fixed, break costs are typically minimal or zero.

When Should You Start Planning for Fixed Rate Expiry?

Start reviewing your options at least three to four months before your fixed term ends. This gives you time to compare rates, gather documentation, and complete a refinance or renegotiation before your loan reverts to the standard variable rate. Lenders typically send a notification 30 to 90 days before expiry, but waiting for that notice means you'll be rushed and may miss opportunities to secure a lower rate elsewhere.

If you're planning to refinance, allow six to eight weeks for the application, valuation, approval and settlement process. If you're negotiating with your current lender, you'll still need time to compare offers from other lenders to ensure you're getting a competitive rate. Many borrowers assume their current lender will offer them the most competitive rate automatically, but retention offers are often higher than the rates available to new customers switching lenders.

Call one of our team or book an appointment at a time that works for you at www.goodwinhomeloans.com.au/book-appointment. We'll walk through your current loan structure, explain your options at expiry, and help you decide whether fixing again, switching to variable, or splitting your loan makes sense for where you are now.

Frequently Asked Questions