Fixed Rate Loan Terms Explained
A fixed rate loan term is the period during which your rate stays locked, typically ranging from one to five years. During this time, your repayments stay the same regardless of what happens to the cash rate or what other lenders are offering.
Once the fixed period ends, your loan automatically switches to the lender's standard variable rate unless you refinance or negotiate a new fixed term. The variable rate you roll onto is often higher than the promotional rates advertised to new customers, so the end of your fixed term is a decision point, not just an administrative event.
Consider a buyer who fixes at 5.79% for three years on a loan amount just under the current median for a suburb in the Perth metro area. When the fixed term ends, the loan converts to a variable rate that might sit around 6.49% or higher depending on market conditions at the time. That shift changes monthly repayments and affects how much you can pay down each year if your budget stays the same.
Why the Length of Your Fixed Term Changes Your Options
Shorter fixed terms give you flexibility sooner but expose you to rate changes faster. Longer fixed terms lock in certainty but reduce your ability to make extra repayments or access features like an offset account during the fixed period.
Most lenders allow limited extra repayments during a fixed term, usually capped at around $10,000 to $30,000 per year depending on the product. If you try to pay more than the allowed amount, or if you want to exit the fixed loan early to refinance or sell, break costs apply. These costs reflect the lender's funding arrangements and can run into thousands of dollars if rates have dropped since you fixed.
If you're buying with a deposit as low as 5% under the Australian Government 5% Deposit Scheme, locking in for too long without understanding the trade-offs can limit your ability to take advantage of features that help you pay down debt faster once your financial position improves.
Combining Fixed and Variable in a Split Loan
A split loan divides your total borrowing into a fixed portion and a variable portion. The fixed portion gives you predictable repayments, while the variable portion lets you make unlimited extra repayments and often comes with an offset account.
In our experience, buyers who split their loan 50/50 or 60/40 between fixed and variable get enough stability to budget confidently while keeping enough flexibility to chip away at the loan when they have spare income. The variable portion also gives you a buffer if you need to refinance or sell before the fixed term ends, because break costs only apply to the fixed portion.
If you're eligible for the Western Australian First Home Owner Grant of $10,000 on a new build, that lump sum can go straight into the variable portion or an offset account linked to it, reducing the interest you pay from day one without triggering any restrictions.
What Happens When Your Fixed Rate Ends
When your fixed period expires, the lender sends a notice around 30 to 90 days beforehand outlining your options. You can let the loan revert to variable, negotiate a new fixed rate with your current lender, or refinance to a different lender entirely.
The variable rate you roll onto is rarely the lowest rate available in the market. It's the lender's standard variable rate, which doesn't include the discounts or promotional pricing offered to new customers. If you do nothing, you're likely paying more than you need to.
Refinancing at this point can save you money, but you need to factor in application fees, valuation costs, and the time it takes to settle a new loan. If you're still within the first few years of owning your home and your circumstances have changed, such as an increase in income or savings, refinancing might also give you access to a better loan structure or remove Lenders Mortgage Insurance if your equity has grown.
Should You Fix Again or Switch to Variable
The answer depends on where rates are sitting when your fixed term ends and what your financial priorities are at that point. If variable rates are lower than new fixed rates, switching to variable makes sense unless you value the certainty of knowing exactly what you'll pay each month.
If rates are climbing or expected to rise, locking in again for another one to three years can protect your budget. Fixing for five years is less common now because it limits your options for too long and the rate premium charged for that length of certainty often doesn't justify the benefit.
If you've been making extra repayments into the variable portion of a split loan and your offset account has built up, you might find that staying variable with that buffer gives you more control than locking in again. The offset reduces the interest charged on the variable portion, which can outweigh the stability of a fixed rate if your balance is high enough.
Fixed Rates and Low Deposit Loans in Western Australia
Buyers in Western Australia using a low deposit often combine the 5% Deposit Scheme with the state's stamp duty concessions, which from March 2025 provide full exemption on properties up to $700,000 in the Perth metro and Peel regions. If you're fixing your loan and your deposit is under 20%, the loan amount will be higher and the impact of the rate you lock in becomes more significant over the fixed term.
For buyers purchasing a new home under the price cap and accessing the $10,000 grant, that grant can reduce the loan amount before you lock in the rate, which lowers the total interest charged during the fixed period. The difference between fixing at a rate half a percentage point higher or lower on a loan amount in the mid-six figures can mean several thousand dollars over three years.
We regularly see buyers who assume they should fix the entire loan amount because they want certainty, but they don't realise that prevents them from using an offset account or making meaningful extra repayments during the period when they're most motivated to get ahead. A split structure often fits better, especially if your income is likely to increase or you're expecting a bonus, tax return, or other lump sum within the next few years.
Choosing the Right Term for Your Situation
If your income is steady and your budget is tight, fixing for two to three years gives you enough time to settle into ownership without worrying about rate movements. If you expect your financial position to improve soon, such as a pay rise, inheritance, or the end of other debt commitments, a shorter fixed term or a split loan keeps your options open.
Buyers who plan to sell or upgrade within five years should avoid long fixed terms entirely. Break costs on a five-year fixed loan exited after two or three years can wipe out any benefit you gained from the lower rate, and you lose the flexibility to act when the right opportunity comes up.
If you're using a guarantor loan to avoid paying LMI and your parents or family members are on the title or mortgage temporarily, you'll want to refinance once you have enough equity to remove them. A long fixed term complicates that process and may delay your ability to restructure the loan when your circumstances change.
Getting Your Loan Structure Right from the Start
The loan structure you choose when you first apply sets the foundation for how you'll manage the loan over the life of the property. Fixing the wrong amount for the wrong term because it seemed like the safest option at the time can cost you flexibility and money later.
Before locking in a fixed rate, ask your broker to model what your repayments will look like when the fixed term ends and the loan reverts to variable. Ask what the annual extra repayment limit is during the fixed period, and whether the lender allows you to split the loan or link an offset account to the variable portion. Those details matter more than the headline rate.
Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit, the grants and concessions you're eligible for, and the loan structure that gives you the right mix of certainty and flexibility for where you're at right now and where you're heading.
Frequently Asked Questions
How long can I fix my home loan rate for?
Most lenders offer fixed rate terms from one to five years. The most common terms are two or three years, which balance rate certainty with flexibility. Longer fixed terms typically come with higher rates and more restrictions on extra repayments.
What happens when my fixed rate term ends?
Your loan automatically converts to the lender's standard variable rate unless you negotiate a new fixed term or refinance. The standard variable rate is often higher than promotional rates offered to new customers, so it's worth reviewing your options before the fixed term expires.
Can I make extra repayments during a fixed rate term?
Most lenders allow limited extra repayments during a fixed term, typically capped at $10,000 to $30,000 per year depending on the product. If you exceed the allowed amount or exit the loan early, break costs may apply.
Should I fix my entire loan or split it between fixed and variable?
A split loan gives you the stability of a fixed rate on part of your borrowing and the flexibility of a variable rate on the rest. This structure allows you to make unlimited extra repayments on the variable portion while still enjoying predictable repayments on the fixed portion.
Can I use the First Home Owner Grant to reduce my fixed rate loan amount?
The Western Australian First Home Owner Grant of $10,000 can be applied to reduce your loan amount before you lock in a fixed rate, which lowers the total interest charged during the fixed period. Alternatively, it can be placed into an offset account linked to a variable portion of a split loan.
