When to Lock in a Fixed Rate for Your First Home

Fixed Rates Lock in a Rate, Not a Saving

A fixed rate loan holds your interest rate steady for a set period, usually between one and five years. You pay the same rate regardless of what variable rates do during that period. That certainty comes with trade-offs. Most fixed rate loans don't allow offset accounts, limit extra repayments to around $10,000 to $20,000 per year depending on the lender, and charge break costs if you exit early. If you're a carpenter expecting irregular income from different jobs, the lack of an offset can mean you're paying interest on the full loan balance even when cash is sitting idle in a separate savings account.

Consider a buyer purchasing with a 10% deposit under the 5% Deposit Scheme. The scheme removes the need for LMI, but it doesn't change how fixed and variable loans are structured. If you fix the full loan amount and then land a bigger project six months later, you won't be able to park that income in an offset to reduce interest. You can make a lump sum payment up to the lender's annual cap, but anything beyond that cap triggers break costs or gets refused.

When Fixed Rates Sit Below Variable Rates

Fixed rates are priced based on wholesale funding costs and lender expectations of future rate movements. When fixed rates are lower than variable rates, lenders are pricing in either stable or falling official rates. That doesn't mean rates will fall, but it does mean the fixed rate is cheaper right now. If you're buying your first home and you know your income and expenses are predictable for the next few years, locking in a lower fixed rate can mean lower repayments during that period compared to a variable loan.

If fixed rates sit higher than variable rates, lenders expect rates to rise. Fixing in that environment means you're paying a premium for certainty. You might still choose to fix if you can't afford any further rate increases, but it's not a financial advantage unless variable rates do climb above your locked rate during the fixed period.

Break Costs Can Wipe Out Any Saving

Break costs apply when you pay out a fixed loan early, whether because you're selling, refinancing, or making extra repayments beyond the lender's annual cap. The cost is calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining fixed period. If rates have fallen since you fixed, the break cost can run into tens of thousands of dollars.

In our experience, carpenters working on project-based income often underestimate how much their cash flow can shift. A buyer who fixes a loan in January might finish a large commercial fit-out in June and want to pay down $40,000. If the lender caps extra repayments at $20,000 per year, the remaining $20,000 either stays in a separate account earning minimal interest or triggers break costs if used to pay down the loan. That's not a small detail when you're trying to reduce debt quickly.

Splitting the Loan Gives You Both Options

A split loan divides your borrowing into two portions: one fixed, one variable. The variable portion gives you access to an offset account and unlimited extra repayments. The fixed portion locks in a rate and provides repayment certainty. You can split the loan in any ratio, such as 50/50, 70/30, or 80/20, depending on how much rate certainty you need versus how much flexibility you want.

Splitting works well for tradies using irregular income to pay down debt faster. You can direct lump sum payments to the variable portion without penalty while the fixed portion holds your minimum repayments steady. The downside is that you're managing two loan accounts, each with its own balance, rate, and repayment schedule. Some lenders charge two sets of fees. Others waive one set if both loans are held with them.

The First Home Loan Deposit Scheme and Fixed Rates

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit without paying LMI. Applications are made through participating lenders, and each lender offers different loan products under the scheme. Some participating lenders allow fixed rate loans, others allow variable loans, and some allow splits. You need to confirm what loan structures are available through your chosen lender before assuming you can fix under the scheme.

If you're applying under the scheme and you want a fixed rate, check whether the lender allows extra repayments and whether an offset is available on any variable portion of a split loan. The scheme removes LMI, but it doesn't override the lender's standard fixed rate loan terms. You're still bound by the lender's break cost formula, extra repayment caps, and product features.

Fixing After Purchase Can Cost More

Most buyers assume they can start on a variable rate and switch to fixed later if rates start climbing. You can, but the rate you're offered at that point will be the lender's current fixed rate, not the rate available when you first applied. If fixed rates have risen in the meantime, you've missed the lower rate. If you're certain you want rate certainty for the first few years, locking in at purchase is usually cheaper than waiting.

Some lenders allow you to lock in a fixed rate up to 90 days before settlement. If you're buying your first home and you expect settlement in three months, you can apply for pre-approval and lock the fixed rate at application if the lender offers a rate lock. That protects you if rates rise before settlement. If rates fall, you're still locked in at the higher rate unless the lender offers a policy that lets you revert to the lower rate. Not all lenders offer that.

Fixed Rate Expiry Means a Decision Point

When your fixed period ends, the loan reverts to the lender's standard variable rate unless you take action. That reversion rate is almost always higher than the lender's discounted variable rates offered to new customers. If you do nothing, your repayments will increase. You can refinance to a new lender, negotiate a better rate with your current lender, or fix again if it makes sense at that time.

We regularly see carpenters reach the end of a three-year fixed term and get hit with a rate that's 0.50% to 1.00% higher than what they could get by refinancing or negotiating. Planning for fixed rate expiry six months out gives you time to compare offers, gather paperwork, and switch lenders or renegotiate without rushing. If you're still in the same financial position as when you first bought, refinancing to a new lender's discounted rate is usually the most cost-effective option.

State Grants and Stamp Duty Concessions Apply Regardless of Rate Type

First home buyer grants and stamp duty concessions are linked to the property and the buyer's eligibility, not the loan structure. If you're eligible for a state grant or duty concession, you can access it whether you choose a fixed rate, variable rate, or split loan. In New South Wales, for example, eligible first home buyers purchasing an established home valued up to $800,000 receive full transfer duty exemption. That applies regardless of whether the loan is fixed or variable.

In Queensland, eligible first home buyers purchasing a new home receive full transfer duty concession with no price cap from 1 May 2025. In Victoria, eligible buyers receive full stamp duty exemption on properties valued up to $600,000. None of these concessions require or exclude a particular loan structure. The loan type is a separate decision based on your cash flow, income predictability, and risk tolerance.

Call one of our team or book an appointment at a time that works for you. We'll walk through current fixed and variable rates, compare loan structures that suit your income pattern, and make sure you're not paying for features you won't use or missing flexibility you'll need.

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