Fixed rate loan terms lock your interest rate for a set period, typically between one and five years. The duration you select determines how long you pay the same amount each month and how much flexibility you retain for extra repayments or access to features like an offset account.
Choosing a fixed rate as a first home buyer often comes down to budget predictability. You know exactly what you will pay each fortnight for the duration of the term, which makes planning other expenses more straightforward when you are adjusting to homeownership. The trade-off is usually reduced flexibility during that period, and the need to make a decision when the term ends.
How Fixed Rate Loan Terms Work
A fixed rate loan term is the period during which your interest rate remains unchanged. During that time, your lender cannot increase your rate regardless of official cash rate movements or changes to their standard variable rate. You pay the same amount each repayment cycle until the fixed term expires.
Once the term ends, your loan typically reverts to the lender's standard variable rate unless you refinance or negotiate a new fixed term. The revert rate is almost always higher than the initial fixed rate you locked in, and in many cases higher than the current advertised fixed rates available to new borrowers. This is why monitoring your fixed rate expiry date is important.
Most lenders offer fixed terms of one, two, three, four, or five years. A small number of lenders also offer terms of six months or up to ten years, though these are less common and usually come with higher rates or stricter conditions.
Shorter Terms vs Longer Terms
A shorter fixed term, such as one or two years, usually comes with a lower rate than a longer term. The lender is taking on less risk by committing to a rate for a shorter period, and that saving is typically passed on to the borrower. Shorter terms also mean you return to variable sooner, which can be an advantage if rates fall during your fixed period.
Longer fixed terms, such as four or five years, provide extended rate certainty but usually at a higher cost. The longer commitment means you are protected if rates rise during that period, but you also miss out if rates fall. If your circumstances change and you need to exit the loan early, break costs on a longer fixed term are often higher.
Consider a buyer who locks in a three-year fixed rate on a property in South Perth. During that period, the Reserve Bank cuts the official cash rate twice, and variable rates drop below the buyer's fixed rate. The buyer continues paying the higher fixed rate for the remainder of the term, but avoids break costs and retains the certainty they originally valued. When the term expires, they refinance to a lower variable rate and gain access to an offset account, which suits their changed financial position.
Fixed Rate Features and Restrictions
Most fixed rate loans allow limited extra repayments, typically capped at $10,000 to $30,000 per year depending on the lender. Exceeding that limit can trigger early repayment fees. Variable rate loans, by contrast, usually allow unlimited additional repayments without penalty.
Offset accounts are rarely available on fixed rate loans. A small number of lenders offer a partial offset or a savings account linked to the loan, but the offset percentage is usually reduced compared to a standard variable loan. Redraw facilities are more common on fixed rate loans, though some lenders charge fees to access redraw funds or impose minimum redraw amounts.
If you are using the Australian Government 5% Deposit Scheme, you can fix all or part of your loan, but the same restrictions on extra repayments and features apply. Some borrowers split their loan between fixed and variable to retain partial access to offset and redraw while locking in a portion of their rate.
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What Happens When Your Fixed Term Ends
When your fixed term expires, your loan automatically moves to your lender's standard variable rate unless you take action beforehand. The revert rate is typically higher than competitive variable rates available in the market at that time. Most lenders allow you to lock in a new fixed rate or switch to a discounted variable rate within 30 to 90 days of your expiry date without refinancing.
If you plan to refinance, start the process at least 60 days before your fixed term ends. This gives you time to compare home loan options, submit an application, and settle the new loan before you revert to the higher rate. Some lenders charge break costs if you refinance before the fixed term ends, even if it is only a few days early, so timing is important.
In our experience, buyers who set a reminder six months before their fixed rate expires have more time to assess whether their current lender's renewal offer is competitive or whether refinancing delivers a lower rate or improved features.
Fixed Rates and First Home Buyer Concessions
State and territory stamp duty concessions and grants are unaffected by whether you choose a fixed or variable rate. In Western Australia, first home buyers purchasing an established home in South Perth benefit from full stamp duty exemption on properties up to $700,000 as of recent changes, with a concession applying on properties valued between $700,000 and $750,000 depending on location and purchase date. These concessions apply regardless of your loan structure.
If you are eligible for the $10,000 First Home Owner Grant in Western Australia, that payment is made after settlement and is not tied to your interest rate type. The grant applies only to new homes, so buyers purchasing established properties near the Swan River or in older parts of South Perth are not eligible.
Lenders Mortgage Insurance, if applicable, is calculated on your deposit size and purchase price, not your interest rate type. Buyers using a 5% or 10% deposit under the Australian Government 5% Deposit Scheme avoid LMI entirely, whether they fix or stay variable.
Split Loan Structures
A split loan divides your borrowing between fixed and variable portions. You might fix 50% of your loan for three years and leave the other 50% variable with full offset access. This structure lets you lock in partial rate certainty while retaining flexibility for extra repayments and offset benefits on the variable portion.
Split loans are common among first home buyers who want rate protection but are not comfortable giving up all flexibility. The fixed portion provides a stable minimum repayment, while the variable portion can be reduced faster using extra repayments or offset funds.
Some lenders charge two sets of fees for a split loan, including two application fees or two annual fees. Other lenders treat a split as a single loan with two rate types and charge only one set of fees. The structure you choose depends on how much certainty you value compared to how much flexibility you expect to use during the fixed term.
When comparing lenders, ask whether the split is managed as one loan or two separate accounts. Some lenders allow you to adjust the split percentages at the end of each fixed term, while others require refinancing to change the structure. If you expect your income or expenses to change within a few years, a structure that allows future adjustment is worth considering.
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Frequently Asked Questions
How long can I fix my home loan interest rate?
Most lenders offer fixed rate terms of one, two, three, four, or five years. A small number of lenders also offer six-month or ten-year terms, though these are less common and often come with higher rates or stricter conditions.
What happens when my fixed rate term ends?
Your loan automatically reverts to your lender's standard variable rate, which is usually higher than competitive rates in the market at that time. You can lock in a new fixed rate, switch to a discounted variable rate, or refinance to another lender before the term expires.
Can I make extra repayments on a fixed rate loan?
Most fixed rate loans allow limited extra repayments, typically between $10,000 and $30,000 per year. Exceeding that limit can trigger early repayment fees, whereas variable rate loans usually allow unlimited additional repayments without penalty.
Do first home buyer concessions apply to fixed rate loans?
Yes. State and territory stamp duty concessions and grants are unaffected by whether you choose a fixed or variable interest rate. The Australian Government 5% Deposit Scheme also allows you to fix all or part of your loan.
Should I choose a shorter or longer fixed rate term?
Shorter fixed terms usually come with lower rates and less risk of high break costs if you need to exit early. Longer terms provide extended rate certainty but at a higher cost and with greater exposure to break fees if your circumstances change.
