A fixed rate home loan locks in your interest rate for a set period, usually between one and five years. During that time, your repayments stay the same regardless of what happens to variable rates in the market.
How Fixed Rate Loan Periods Work
Fixed rate periods typically range from one to five years, with three-year terms being the most commonly chosen option. When the fixed period ends, your loan will revert to the lender's variable rate unless you negotiate a new fixed term or refinance. The rate you lock in applies only to that fixed period, so a loan fixed at a certain rate today will move to whatever the lender's standard variable rate is when the term expires.
In our experience working with Werribee residents, many borrowers choose three-year fixed terms to balance rate certainty with flexibility. Shorter terms of one or two years suit buyers who expect rates to drop or who might need to sell within a few years. Longer five-year terms appeal to those prioritising budget certainty, though these often come with stricter conditions around early exit or additional repayments.
The Portability Feature and Why It Matters
Portability allows you to take your fixed rate loan with you if you sell your current property and buy another one during the fixed period. Not all lenders offer this feature, and those that do often attach conditions. You'll typically need to settle the sale and purchase on the same day or within a short window, and the new property must meet the lender's security requirements.
Consider a borrower who bought a townhouse near Werribee Plaza on a three-year fixed rate but received a job transfer to Geelong 18 months later. With portability, they sold the townhouse and purchased in Geelong without paying break costs on the fixed loan. The same loan, same rate, and same remaining fixed period transferred to the new property. Without portability, they would have faced break costs that could have run into thousands of dollars depending on how much rates had moved since they fixed.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Mortgage and Loans Hub today.
Extra Repayment Limits on Fixed Rate Loans
Most fixed rate home loans allow you to make additional repayments up to a certain limit each year without penalty, commonly between $10,000 and $30,000 depending on the lender. Anything beyond that limit may trigger early repayment fees. These limits reset annually on the anniversary of your loan settlement, not on the calendar year.
If you regularly receive bonuses, tax returns, or other lump sums and want to pay down your loan faster, check the extra repayment limit before locking in a fixed rate. Some lenders allow unlimited extra repayments on their variable products but cap them heavily on fixed loans. If your income is steady and you're unlikely to make large additional payments, this feature becomes less relevant and you can focus on securing the lowest fixed rate available.
Offset Accounts and Fixed Rate Compatibility
An offset account is a transaction account linked to your home loan where the balance reduces the amount of interest you're charged. Not all fixed rate loans come with an offset account, and when they do, the fixed rate offered is often slightly higher than a fixed loan without offset.
The offset account feature is more common on variable rate loans, but some lenders do offer it on fixed products. If you maintain a healthy balance in your transaction account, the interest savings from an offset can outweigh the slightly higher fixed rate. However, if your savings sit elsewhere or you keep minimal cash on hand, paying extra for an offset feature on a fixed loan may not deliver value. We regularly see this play out with dual-income households in Werribee who pool their income into one account before paying bills. That pooled amount, even temporarily, can save a meaningful amount of interest when offset against the loan.
Split Rate Loans and How They Work
A split rate loan divides your total loan amount into two portions, one fixed and one variable. You choose the split, commonly 50/50, but it can be any proportion that suits your circumstances. Each portion operates independently with its own interest rate, repayment amount, and features.
Splitting gives you rate stability on part of the loan while keeping access to features like unlimited extra repayments and full offset functionality on the variable portion. As an example, a borrower purchasing an established home near Werribee River precinct might fix 60% of the loan to lock in most of their repayment for three years, while keeping 40% variable with an offset account linked to it. They gain certainty on the majority of the loan and flexibility on the rest. If rates drop, the variable portion benefits immediately. If rates rise, the fixed portion shields them from the full impact. You can read more about split loan strategies and how they suit different financial situations.
Break Costs and What Triggers Them
Break costs apply when you exit a fixed rate loan early, whether by refinancing, selling without portability, or paying off the loan in full. The cost depends on the difference between your fixed rate and the current wholesale rate the lender can earn by re-lending that money. If rates have dropped since you fixed, break costs can be substantial. If rates have risen, break costs may be minimal or even zero.
Lenders calculate break costs using a formula tied to wholesale interest rates, the remaining fixed period, and your outstanding loan balance. The calculation is not transparent and varies between lenders. Before committing to a fixed rate loan, consider how likely you are to sell, refinance, or pay off the loan during the fixed period. If any of those events are possible, either choose a shorter fixed term, ensure portability is included, or consider whether fixing is the right option at all.
Rate Lock and Application Timing
Rate lock allows you to secure a fixed rate at the time of home loan application rather than at settlement. Most lenders offer a rate lock period of 90 days, though some extend this to 120 days. If rates rise between application and settlement, you're protected. If rates fall, you're locked into the higher rate unless the lender allows you to reapply.
This feature matters most in a rising rate environment or when settlement is delayed. Buyers purchasing off-the-plan or building in growth areas around Werribee, where settlement can take months, benefit from rate lock because it removes uncertainty from the purchase timeline. However, rate lock often comes with a fee, typically a few hundred dollars, and you'll need to weigh that cost against the likelihood of rate movement during your settlement window.
If your circumstances have changed since you first locked in a fixed rate, or if your current fixed term is coming to an end, you might consider a loan health check to review whether your loan structure still suits your situation.
Call one of our team or book an appointment at a time that works for you. We'll walk through your options and help you work out which fixed rate loan features actually suit the way you manage your finances.
Frequently Asked Questions
What happens when my fixed rate period ends?
When your fixed rate period ends, your loan will automatically revert to the lender's standard variable rate unless you arrange a new fixed term or refinance to another lender. You should review your options at least a few months before the fixed period expires to avoid reverting to a rate that may not be suitable.
Can I make extra repayments on a fixed rate home loan?
Most fixed rate home loans allow extra repayments up to a limit, commonly between $10,000 and $30,000 per year. Repayments beyond this limit may trigger early repayment fees. The limit usually resets each year on the anniversary of your loan settlement.
What are break costs and when do they apply?
Break costs apply when you exit a fixed rate loan early by refinancing, selling, or paying off the loan in full. The amount depends on the difference between your fixed rate and current wholesale rates. If rates have dropped since you fixed, break costs can be significant.
Is an offset account available with a fixed rate loan?
Some lenders offer offset accounts with fixed rate loans, but the fixed rate is often slightly higher than a loan without offset. Offset accounts are more commonly available on variable rate loans, so it's worth comparing whether the feature justifies the higher rate.
What is a split rate loan?
A split rate loan divides your total loan into two portions, one fixed and one variable. You choose the split ratio, and each portion operates independently with its own rate and features. This gives you rate certainty on part of the loan while maintaining flexibility on the rest.
