Fixed Rates When You're Buying Your First Property
A fixed rate loan locks in your interest rate for a set period, typically between one and five years. For first home buyers in Ashburton, this certainty around repayments can make budgeting more predictable during the early years of ownership when other costs like council rates, utilities, and maintenance are still unfamiliar.
Consider a buyer who has just secured pre-approval and is looking at properties near the Warrigal Road shopping precinct. They have a 10% deposit and are using the Australian Government 5% Deposit Scheme to avoid LMI. Their broker presents two options: a variable rate currently sitting around 6.20%, or a three-year fixed rate at 5.85%. The fixed rate delivers lower repayments for three years, but importantly, it removes the risk of rate rises during that period. For someone adjusting to the full cost of homeownership, that stability often outweighs the loss of flexibility. At the end of the three-year term, the loan reverts to the lender's standard variable rate unless the borrower refinances or negotiates a new fixed term. The outcome in this scenario is that the buyer has three years of certainty to build equity, adjust their budget, and assess their financial position before making another decision.
First home buyers in Ashburton also need to consider whether they might sell or refinance within the fixed period. Fixed rate loans typically carry break costs if you exit early, calculated based on the difference between your fixed rate and current wholesale rates. If you think you might upgrade or relocate within two years, a shorter fixed term or a variable rate may be more suitable. For buyers using first home buyer schemes or planning to start a family in the near term, this trade-off between certainty and flexibility is worth discussing with your broker before you lock in.
How Fixed Rates Work When You're Growing a Family
Once you have dependants, household income can shift. One partner may reduce working hours or take parental leave, and expenses increase. A fixed rate provides a buffer against rate rises when your capacity to absorb higher repayments is reduced.
Families in Ashburton often refinance during this stage to align their loan structure with their current needs. A parent returning to work part-time might want to know exactly what the mortgage repayment will be for the next few years, rather than facing the possibility of several rate increases. In our experience, borrowers in this position often choose a three or four-year fixed term that covers the period of reduced income, then revert to variable or refinance once both partners are back to full-time work. This approach allows you to plan around school fees, childcare costs, and other non-negotiable expenses without the concern that your repayments will climb unexpectedly.
Another consideration at this stage is whether to include an offset account. Most fixed rate products either don't offer a linked offset or offer limited offset functionality compared to variable loans. If you're holding savings for upcoming expenses like a second car, school fees, or home renovations, a split loan structure can work well. You fix a portion of the loan for stability and keep the remainder on a variable rate with full offset access, allowing you to reduce interest on the variable portion while maintaining flexibility over your savings.
Fixed Rates for Mid-Career Borrowers and Property Investors
Mid-career borrowers and investors approach fixed rates differently. Income is usually more stable, but the focus shifts to tax efficiency, equity access, and portfolio growth. Fixed rates on investment loans provide certainty around negatively geared deductions and simplify cash flow forecasting, particularly if you hold multiple properties.
For investors purchasing in Ashburton, the decision to fix often hinges on the economic outlook and your view on rate movements. If you believe rates will rise or remain elevated, fixing a portion of your investment loan can protect your after-tax return. If you plan to draw on equity within the next few years to fund another purchase, you need to account for break costs or structure the loan so only part of it is fixed. Lenders calculate break costs based on the difference between your fixed rate and the current cost of funds. If rates have fallen since you fixed, the break cost can be substantial. If rates have risen, the break cost may be nil.
Investors also need to consider portability. Not all fixed rate loans allow you to transfer the loan to a new security if you sell and buy another property. If you're likely to sell within the fixed period, confirm with your broker whether portability is available and whether any conditions apply. Loans that are portable generally allow you to avoid break costs, but the feature is not universal and may come with a higher rate or reduced flexibility in other areas.
Preparing for Retirement with a Fixed Rate Strategy
Borrowers in the final years of their mortgage often have different priorities. The goal is usually to clear the debt before retirement or reduce it to a manageable level. Fixed rates can support this by locking in lower repayments if rates are favourable, freeing up cash flow to make additional payments on the variable portion of a split loan or to direct into super.
For owner-occupiers in Ashburton nearing retirement, a short fixed term of one or two years can provide a window of lower repayments while you assess your financial position and plan your transition out of full-time work. The risk is that if you fix and rates fall, you miss out on the benefit of lower variable rates. But if you value certainty and are prioritising debt reduction over rate speculation, a short fixed term may still be the right choice. At this stage, the ability to make extra repayments without penalty becomes more important, so it's worth comparing how much you can pay down during the fixed period before break costs apply. Most lenders allow up to $10,000 to $30,000 in additional repayments per year on a fixed loan, but the threshold varies.
Retirees and semi-retirees also need to consider how their loan will be serviced once their income drops. Lenders assess serviceability based on your current income, and refinancing in retirement can be more difficult if your income consists primarily of super drawdowns or the age pension. If you're planning to refinance or restructure your loan after retirement, it's worth having that conversation with your broker now, while your income still supports a full assessment. Locking in a fixed rate before you retire can give you several years of stable repayments and time to reduce the balance before the loan reverts or needs to be refinanced.
When Not to Choose a Fixed Rate
Fixed rates are not suitable for every borrower or every situation. If you expect a significant change in your circumstances within the fixed period, such as selling the property, receiving an inheritance, or relocating for work, the cost of breaking the loan may outweigh the benefit of rate certainty. Similarly, if you want to make large lump sum repayments or access equity frequently, a variable loan or split structure will provide more flexibility.
Borrowers who are highly sensitive to rate movements and want the ability to take advantage of rate cuts should also reconsider fixing. Once you're locked in, you don't benefit from any reduction in variable rates unless you break the loan and pay the associated cost. For borrowers with irregular income, such as those who are self-employed or working on contract, the inability to redraw funds from a fixed loan can also be a limitation. Most fixed loans do not allow redraw, so any extra repayments you make are locked in until the fixed term ends.
Call one of our team or book an appointment at a time that works for you. We'll review your situation, explain the current fixed and variable rate options available, and help you structure a loan that aligns with your goals at this stage of your financial journey.
Frequently Asked Questions
What happens to my fixed rate loan when the fixed term ends?
At the end of the fixed term, your loan automatically reverts to the lender's standard variable rate unless you refinance or negotiate a new fixed term. You can contact your broker or lender before the fixed period ends to discuss your options and avoid reverting to a higher rate.
Can I make extra repayments on a fixed rate loan?
Most lenders allow extra repayments of up to $10,000 to $30,000 per year on a fixed rate loan without penalty, but the threshold varies by lender and product. Exceeding this limit may result in break costs. Check your loan terms or speak with your broker to confirm your limit.
What are break costs and when do they apply?
Break costs are fees charged by the lender if you exit a fixed rate loan early, refinance, or make extra repayments beyond the allowed limit. The cost is calculated based on the difference between your fixed rate and current wholesale rates. If rates have fallen since you fixed, the break cost can be significant.
Should I choose a split loan instead of fixing the entire amount?
A split loan allows you to fix part of your loan for stability and keep the remainder on a variable rate with offset access and flexibility. This structure works well if you want rate certainty but also need to make extra repayments or access equity. Your broker can help determine the right split based on your goals.
Can I refinance a fixed rate loan before the term ends?
Yes, you can refinance a fixed rate loan before the term ends, but you will likely incur break costs unless rates have risen since you fixed. Some borrowers choose to refinance if the benefit of a lower rate elsewhere outweighs the break cost. Your broker can calculate whether refinancing makes financial sense in your situation.
