The easiest way to lock in a fixed rate as a first home buyer

A fixed rate protects you from rate rises during the period you need certainty most. But it also locks you out of features you might need as your income increases or your circumstances shift. The decision is not whether to fix, but how much to fix and for how long.

Should you fix your entire loan or split it?

Splitting your loan gives you access to an offset account on the variable portion while holding a lower rate on the fixed side. Consider a Department of Home Affairs officer purchasing at current median values using the Australian Government 5% Deposit Scheme. With a 5% deposit, no LMI applies under that scheme. A split of 60% fixed and 40% variable allows you to redirect your fortnightly pay into an offset account while the larger portion is shielded from rate movements. If rates fall during the fixed term, the variable portion adjusts down. If they rise, most of your repayment stays the same.

In our experience, buyers who fix the full amount regret it within 18 months once they realise they cannot access redraw or offset without breaking the fixed portion and incurring costs. A split structure prevents that.

How long should you fix for?

Two or three years gives you enough certainty to settle into repayments without tying you up through major life changes. Buyers in their late twenties or early thirties often move through at least one promotion, a second income joining the household, or a decision to upgrade within three to five years. A five-year fixed term that seemed sensible at settlement can become a constraint when your borrowing capacity improves and you want to adjust your loan or move.

If your deposit is borderline and you are relying on the 5% Deposit Scheme to avoid LMI, a longer fixed term can add confidence that repayments will not increase sharply during the first few years. But you lose the flexibility to increase repayments without penalty once your income rises. Match the fixed term to the period you genuinely need protection, not the longest term the lender will offer.

What happens when your fixed rate ends?

Your loan rolls onto the lender's variable rate unless you negotiate a new rate or refinance before the fixed term expires. That variable rate is often higher than the discounted rate offered to new customers. Most lenders will let you negotiate a new fixed or variable rate in the 90 days before expiry, but you need to initiate that conversation. If you do nothing, your repayment can increase by several hundred dollars per month depending on where rates sit at the time.

When your fixed rate ends, your circumstances might have changed enough that refinancing to another lender makes sense. If you have built equity and your income has increased, you might qualify for a lower rate or remove LMI that was baked into your original loan. Public sector employment gives you an edge in that negotiation because your income is seen as stable and your salary progression is documented.

Can you make extra repayments on a fixed rate loan?

Most fixed rate loans allow up to $10,000 to $30,000 in additional repayments per year without penalty, depending on the lender. Anything beyond that cap incurs break costs. If you are likely to receive an inheritance, a tax refund through the First Home Super Saver Scheme, or a second income within the fixed period, confirm the extra repayment limit before you lock in the rate.

Break costs apply when you repay more than the allowed amount, refinance, or sell the property during the fixed term. The calculation is based on the difference between your fixed rate and the current wholesale rate the lender can earn by redeploying that money. If rates have dropped since you fixed, break costs can run into the thousands. If rates have risen, the break cost is often nil because the lender is not worse off.

Buyers using a 5% or 10% deposit under a government scheme need to be particularly careful. If you decide to sell or upgrade within two years and you are still inside a fixed term, break costs can erode the equity you have built. That is one reason a split loan or a shorter fixed term often makes more sense than locking in the full amount for five years.

Do you still get access to offset and redraw on a fixed rate?

You do not get an offset account on a fixed rate portion. Some lenders offer redraw, but withdrawal is often restricted or slow compared to the instant access you get with a variable loan. If you are someone who builds a buffer by putting extra cash into your loan and pulling it out when needed, a fixed rate will frustrate that approach unless you split the loan and keep a variable portion with offset.

For Department of Home Affairs employees paid fortnightly, the value of an offset account is significant. Redirecting your pay into offset reduces the interest calculated daily on your variable balance. Over a year, that can save you more than the difference between a fixed and variable rate, depending on how much you keep in the account. Run the numbers with your broker rather than assuming a fixed rate will always save you more.

What should your split ratio be?

There is no universal answer, but a 50-50 split or a 60-40 split in favour of fixed gives most buyers the balance they need. If your income is likely to increase and you want flexibility to make larger extra repayments, weight the split toward variable. If you are stretching your borrowing capacity and need repayment certainty, weight it toward fixed. You can also fix different portions for different terms, such as 50% fixed for two years and 30% fixed for three years, with 20% variable. Some lenders allow up to five splits on one loan.

Your situation will determine what works, but the principle holds: a single fixed rate across the whole loan removes options you are likely to need before the fixed term ends.

Buying your first property is a decision that sits alongside your career progression, not separate from it. A loan structure that adapts as your income and priorities shift will serve you better than one that locks everything down for the sake of a slightly lower rate. Call one of our team or book an appointment at a time that works for you.

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