A fixed rate refers to a type of home loan where the interest rate is locked in (fixed) for a specific period—usually 1 to 5 years. During this time, your repayments remain the same, regardless of changes in the broader interest rate market (such as movements by the Reserve Bank of Australia).

Key Features of a Fixed Rate Home Loan:

Fixed Interest The rate is set and won’t change for the fixed term.

Predictable repayments Your monthly repayments remain consistent, which makes budgeting easier.

Fixed term Commonly 1, 2, 3, or 5 years. At the end, the loan usually reverts to a variable rate unless you refix or renegotiate.

Break costs If you end the loan early (e.g., sell your property or refinance), you may incur significant break fees.

Extra repayments Often limited or not allowed (e.g., max $10,000 extra per year) depending on the lender.

Redraw facility Usually not available or restricted during the fixed term.

Offset accounts Not always available with fixed loans, or may only offer partial offset (e.g., 40%).

Pros:

• Protection from interest rate rises.

• Certainty in budgeting and repayments.

• Peace of mind for first-home buyers or those with tight budgets.

Cons:

• Limited flexibility (extra repayments, redraw, refinancing).

• You miss out if interest rates fall.

• Break costs can be high if you exit early.

Example:

You take out a 3-year fixed home loan at 5.80% p.a.
Your repayments won’t change for the next 3 years, even if the RBA changes the official cash rate.

A rate lock is a feature offered by some lenders that allows you to secure (lock in) a fixed interest rate on your home loan before settlement or loan drawdown—even if interest rates rise in the meantime.

When you apply for a fixed rate home loan, the interest rate can change between the time you apply and when your loan actually settles. A rate lock guarantees that the rate you select at the time of application will still apply when your loan starts, typically for up to 90 days.

Benefits of Rate Lock:

• Protection against rate rises during the application or pre-settlement period.

• Peace of mind knowing exactly what your fixed repayments will be.

• Helps you budget and plan with certainty.

Things to Consider:

Fee applies Most lenders charge a rate lock fee (e.g., $395 to 0.15% of loan amount).

Valid for limited time Typically valid for 60–90 days from when you apply for the rate lock.

Does not reduce rate If fixed rates drop, you won’t benefit from the lower rate unless you pay to re-lock or switch

Must request it It is not automatic—you must ask your lender or broker to add the rate lock at application.

When to Consider a Rate Lock

• In a rising rate environment – protects you from interest rate increases between approval and settlement.

• On longer fixed-rate terms, where even a small rate increase can cost significantly over time

• When you need settlement certainty and want stable repayments from day one.

Things to Keep in Mind

• The rate lock fee is typically deducted at settlement or included in your total loan amount, and it’s non-refundable if your loan doesn’t proceed or you cancel the lock

• If interest rates fall, many lenders will still offer the lower rate, but this may involve additional negotiation and doesn’t always come with a refund of the lock fee

Summary

• A rate lock guarantees your fixed interest rate for a set period, shielding you from potential rate hikes before settlement.

• It usually costs between $300 and $1,500, depending on the lender and loan amount.

• Best suited for borrowers seeking budget certainty and rate protection in uncertain markets.

A variable rate home loan is a loan where the interest rate can change at any time, usually in response to decisions made by the Reserve Bank of Australia (RBA) or your lender’s own funding costs.

Key Features of a Variable Rate Home Loan:

Interest rate can fluctuate The rate may rise or fall during the life of your loan.

Flexible repayments You can usually make unlimited extra repayments without penalty.

Redraw facility Typically available, allowing you to access any extra repayments made.

Offset account Often available, helping reduce interest charged on your loan.

No fixed term You're not locked in for a specific number of years like a fixed loan.

Refinance-friendly Easier and cheaper to switch to another lender or loan product.

Benefits:

• You benefit when interest rates fall—your repayments may decrease.

• Extra repayments and redraws are usually allowed with no restrictions.

• Often includes full offset account access.

• Easier to refinance or pay out early without break fees.

Drawbacks:

• Less predictable—if rates rise, your repayments go up.

• Harder to budget compared to fixed loans.

• You carry the risk of interest rate increases.

Example:

If your home loan has a 5.80% variable rate, and the RBA cuts rates by 0.25%, your lender might reduce your rate to 5.55%, lowering your monthly repayments. But the opposite can also happen.

A split loan (also known as a split rate home loan) is a home loan that allows you to divide your loan into two or more portions, typically combining:

• a fixed rate portion (for stability and predictable repayments), and

• a variable rate portion (for flexibility and features like redraw and offset).

How a Split Loan Works:

You choose how to divide your loan. For example:

• 60% Fixed Rate ($360,000 of a $600,000 loan)

• 40% Variable Rate ($240,000 of the loan)

Each portion is treated separately—different interest rates, repayment rules, and features.

Benefits of a Split Loan:

Rate stability The fixed portion protects you from interest rate rises.

Flexibility The variable portion allows extra repayments, redraw, and offset features.

Balance of risk You can take advantage of falling rates on the variable portion, while having peace of mind from the fixed part. Customisable You can tailor the split to suit your needs (e.g., 50/50, 70/30 etc.).

Things to Consider:

Break fees You may pay break costs if you exit the fixed portion early.

Complexity Two parts mean managing different loan conditions.

Rate changes The variable portion can still increase with market rates.

Not all lenders allow offset Some lenders only apply offset to the variable portion.

Step-by-Step Guide: Choosing What Portion to Fix

Step 1: Review Your Monthly Budget – Fixed vs. Variable Split Decision

Start by evaluating your income, expenses, and savings capacity to determine how much of your loan should be fixed versus variable. This helps balance repayment stability with the flexibility to reduce interest through features like offset and redraw.

How much must remain stable and predictable?

Fix this portion of the loan to provide peace of mind and protection against rising interest rates—especially if you're on a tight or fixed budget.

How much flexibility do you need?

Leave a portion variable if you want the ability to:
- Make extra repayments
- Use a redraw facility
- Benefit from a 100% offset account

Examples:

1. Fixed Stability Focus

• You have a $600,000 loan and need your repayments to remain stable on at least $400,000. You can fix that portion and leave the remaining $200,000 on a variable rate to access features like redraw and offset.

2 Offset-Driven Strategy

• You’re able to save about $1,000/month and you plan to fix for 2 years. That means you'll likely accumulate $24,000 in savings during the fixed term. In this case, it may make sense to:
  - Fix most of the loan for stability (e.g., $500,000)
  - Leave $100,000 variable so your savings can be offset against it and reduce your interest.

Deciding between a fixed, variable, or split rate home loan depends on your personal financial goals, lifestyle, and risk tolerance. Use this guide to help determine which option best suits your situation.

Fixed Rate is Best If:

·         You want certainty and stable repayments.

·         You’re on a tight budget or a first-home buyer.

·         You don’t plan to make large extra repayments or refinance soon.

Variable Rate is Best If:

·         You want flexibility and the ability to repay faster.

·         You expect interest rates to fall or stay low.

·         You may refinance, sell, or switch loans in the near future.

What About a Split Loan?

A split loan combines the stability of a fixed rate with the flexibility of a variable rate. It allows you to divide your loan into two parts—one fixed, one variable—so you can enjoy the benefits of both.

This option suits borrowers who want some repayment certainty but also want access to features like redraw or offset.

Ultimately, the right loan structure depends on what matters most to you—whether it’s predictable repayments, greater flexibility, or a mix of both.