Fixed Rate Loans: The Pros and Cons for First Home Buyers

Locking In Your Rate: What It Actually Means

A fixed interest rate means your repayments stay the same for an agreed period, typically between one and five years. During that time, your lender can't change your rate regardless of what happens in the wider market.

Consider a couple purchasing their first home in Mount Waverley. They lock in a three-year fixed rate and know exactly what their fortnightly repayment will be for the next 36 months. If the Reserve Bank raises rates twice in that period, their repayment stays unchanged. If rates fall, they're still locked in at the higher figure. The certainty cuts both ways.

The appeal for many couples buying together is budgeting confidence. When you're managing dual incomes, shared expenses, and working out how much you can afford for furniture or repairs, knowing your mortgage repayment won't shift helps you plan. That stability matters most in the first few years when you're still adjusting to homeownership costs.

What You Give Up When You Fix

Most fixed rate products don't come with an offset account. That's a real consideration if you're used to keeping savings in an account that reduces your interest.

In our experience, couples often underestimate how much they'll want to pay extra once they settle in. You might receive a tax refund, a work bonus, or an inheritance. On a variable loan, you can typically make unlimited extra repayments and access those funds again through redraw if needed. On a fixed loan, most lenders cap extra repayments at around $10,000 to $30,000 per year. Go beyond that and you'll trigger break costs.

If you need to sell or refinance before your fixed term ends, break costs can apply. These are calculated based on the difference between your fixed rate and the current wholesale rate your lender can get in the market. If rates have risen since you fixed, there's often no break cost. If they've fallen, the charge can run into thousands of dollars. That's worth knowing if there's any chance you'll move, upgrade, or need to access equity within the fixed period.

Split Rate Structures: Fixing Part of Your Loan

You don't have to choose one or the other. A split loan lets you fix a portion of your borrowing and keep the rest variable.

As an example, a couple borrowing to buy in Cheltenham might fix 60% of their loan for three years to protect most of their repayment from rate rises, and leave 40% variable with an offset account attached. They get budget certainty on the majority of the loan and keep flexibility on the rest. Any lump sum payments or savings can sit in the offset against the variable portion without restriction.

The right split depends on your risk tolerance and savings behaviour. If you're both in stable jobs and want maximum predictability, fixing a larger portion makes sense. If one of you is self-employed or expects variable income, keeping more on variable gives you room to move. The First Home Buyers page covers how different loan structures work alongside government schemes when you're entering the market for the first time.

How Long Should You Fix For?

The length of your fixed term should match how long you need certainty. Fixing for one or two years suits buyers who want short-term protection but expect their income to rise or rates to settle. Fixing for four or five years suits those who want to lock in repayments through the early years of homeownership when other costs are less predictable.

Longer fixed terms usually come with slightly higher rates because the lender is taking on more risk. Shorter terms tend to be priced closer to variable rates. If you're tossing up between a two-year and a five-year fix at similar rates, the two-year term gives you an earlier exit without sacrificing much certainty.

One detail that catches people out: your fixed rate will expire, and when it does, your loan will automatically roll onto the lender's standard variable rate unless you negotiate a new deal. That standard rate is almost always higher than the discount rate offered to new customers. Set a reminder six months before your fixed term ends so you have time to refinance to a lower rate or negotiate a new fixed term with your current lender.

Fixed Rates and First Home Buyer Schemes

You can use a fixed rate loan under the Home Guarantee Scheme, including the expanded First Home Guarantee that now has no income caps. The guarantee reduces or removes your Lenders Mortgage Insurance cost when buying with a smaller deposit, and it works with both fixed and variable rate products.

The same applies to shared equity schemes like Victoria's Homebuyer Fund or NSW's Shared Equity Home Buyer Helper. The government's contribution to your purchase price doesn't restrict whether you fix or keep your rate variable. What matters is making sure your loan structure still works if you need to refinance or buy out the government's share later, and fixed rate break costs can complicate that if your plans change.

If you're using a guarantor loan where a parent or family member supports your borrowing, check how fixing your rate affects the guarantee. Some guarantees are structured to be released once you reach a certain equity position, and paying down your loan faster on a variable rate might get you there sooner than being locked into fixed repayments with limited extra payment options.

When Variable Makes More Sense

Variable rates suit buyers who want full control over their repayments and access to features like offset accounts and unlimited extra repayments. If you're both earning well and expect to put any spare income toward the mortgage, a variable loan lets you reduce your interest and loan term without restriction.

It also makes sense if you think there's a reasonable chance you'll want to access equity within a few years to renovate, invest, or help a family member. Breaking a fixed loan to release equity can wipe out any rate advantage you locked in.

Rates will move over time. If you're comfortable with that and can absorb a rate rise without stress, variable gives you more flexibility to adapt your repayments to your circumstances. The loan repayment calculator can show you how different rate scenarios affect your repayment, which helps you decide how much protection you actually need.

Making the Decision Together

Buying your first home as a couple means aligning on how much certainty you each need. One of you might want the security of knowing exactly what you'll pay each fortnight. The other might value the ability to pay extra when possible or keep savings working in an offset. Both perspectives are valid, and a split loan often bridges the gap.

Talk through what happens if rates rise by 1% or if one of you changes jobs or takes parental leave. Work out whether you'd rather have predictable repayments or the ability to pay the loan down faster when you can. Your answer to that question will tell you whether fixing, splitting, or staying variable makes the most sense for your situation.

Call one of our team or book an appointment at a time that works for you. We'll run through your income, deposit, and plans for the next few years and show you what fixing part or all of your loan would look like compared to staying variable, so you can make the call with confidence.

Frequently Asked Questions