Fixed Rates for First Home Buyers: What Not to Lock In

A fixed rate loan gives you payment certainty for an agreed period, typically between one and five years.

That certainty has real value when you're buying your first property, particularly in regional areas where employment can shift and income might not be as stable as metro markets. But locking in the wrong term can cost you more than it saves. The choice between a one-year, three-year, or five-year fixed term depends on what you expect to do with your loan over that period, not just which rate looks lowest today.

How Fixed Terms Work in Practice

A fixed rate loan holds your interest rate constant for the term you choose. Your repayments stay the same regardless of whether the Reserve Bank moves rates up or down. At the end of the fixed period, your loan reverts to the lender's variable rate unless you refinance or lock in another fixed term.

The trade-off for that certainty is flexibility. Most fixed rate loans in Australia don't come with an offset account, which means any savings you hold outside the loan continue to earn taxable interest instead of reducing the interest you pay. You're also limited in how much extra you can repay during the fixed period, usually capped at $10,000 to $30,000 per year depending on the lender. If you need to exit the loan before the term ends, whether to sell, refinance, or restructure, you'll pay break costs calculated on the difference between your fixed rate and the lender's current wholesale funding rate.

Consider a buyer who purchases a three-bedroom home near the Cobram Golf Club with a 10% deposit and fixes for five years at 5.89%. Two years in, they receive an inheritance and want to pay down $80,000. The lender allows $20,000 per year without penalty, so $40,000 can be applied. The remaining $40,000 would trigger break costs, which in a rising rate environment might be minimal but in a falling rate environment could exceed $3,000. That cost has to be weighed against the interest saved by reducing the loan balance early.

One Year or Two: When Short Fixed Terms Make Sense

Short fixed terms suit buyers who expect their circumstances to change within the next year or two. If you're planning to move for work, expecting a salary increase, or anticipate receiving funds that you'll want to put toward the loan, a one or two-year fixed term gives you certainty now without locking you into a long-term structure that might not fit later.

The rates on short fixed terms are often lower than longer terms, but that's not always the case. Rate curves shift depending on what lenders expect the Reserve Bank to do. A short fixed term also means you'll face a refinance or revert decision sooner, which brings another round of paperwork and assessment.

For Cobram buyers, short terms can work if you're purchasing a property you might outgrow quickly or if you're employed in seasonal industries like horticulture where income fluctuates year to year and you want the option to restructure once your financial position stabilises. Short terms also make sense if you expect to access funds from the First Home Super Saver Scheme and want the flexibility to make a larger contribution once those funds are released.

Three Years: The Most Common Choice

Three-year fixed terms are the middle ground most first home buyers land on. The term is long enough to provide meaningful certainty but short enough that you're not locked in through major life changes. Most people's circumstances shift within five years, whether that's a job change, a growing family, or a move to a different property.

Three-year fixed rates are typically more competitive than five-year rates, and the shorter commitment means lower break costs if you do need to exit early. For buyers using the Australian Government 5% Deposit Scheme, a three-year fixed term aligns well with the period during which you're building equity and moving away from the higher loan-to-value ratio you started with.

In regional towns like Cobram, where property values have been steadier than metro markets but employment can be more variable, a three-year fixed term gives you predictability through the period where your budget is tightest without tying you to a structure that might not suit you once you've settled into the property and your income position has firmed up.

Five-Year Fixed Terms: The Commitment and the Cost

Five-year fixed terms offer the longest certainty available from most Australian lenders. Your repayments stay the same for five years, which can make budgeting straightforward and remove any concern about rate rises during that period.

The cost of that certainty is flexibility. Five years is a long time to go without access to an offset account, and the restrictions on extra repayments mean any windfall you receive, whether from work bonuses, tax refunds, or family gifts, sits in a savings account earning minimal interest rather than reducing your loan balance. Break costs on a five-year fixed loan can be substantial if you need to exit in the first two or three years, particularly if rates have fallen since you locked in.

For first home buyers in Cobram, five-year fixed terms are less common unless you have a very stable income, no plans to move, and a strong preference for payment certainty over flexibility. Most buyers in regional areas benefit more from shorter terms or split structures that give them some certainty without removing all their options.

Split Loans: Keeping Your Options Open

A split loan divides your borrowing between a fixed portion and a variable portion. You might fix 50% for three years and leave 50% variable with an offset account. The fixed portion gives you certainty on part of your repayment, while the variable portion lets you make extra repayments, access an offset, and redraw if needed.

Split structures are common for first home buyers who want some protection from rate rises but also want the flexibility to pay down debt faster when they have surplus cash. The variable portion also gives you a buffer if you need to refinance or restructure before the fixed term ends, as you're only paying break costs on the fixed portion, not the entire loan.

The downside is administrative. You're managing two loan accounts, each with its own balance, rate, and fee structure. Some lenders charge separate application or annual fees for each split, which can add $200 to $400 per year depending on the lender. For buyers in Cobram purchasing at the regional property price cap under the 5% Deposit Scheme, a split structure can work well if you're accessing the scheme for the deposit but expect your income to grow or anticipate lump sum payments over the next few years.

What Happens When Your Fixed Term Ends

At the end of your fixed term, your loan reverts to the lender's standard variable rate unless you take action. That revert rate is almost always higher than the discounted variable rate the lender offers to new customers, sometimes by 0.50% to 1.00% or more.

Most borrowers refinance at the end of a fixed term to access a better rate, either with their current lender or by moving to a new one. If your circumstances have changed, that's also the time to restructure your loan, whether by consolidating debt, accessing equity, or switching to a loan product with features that better suit your needs.

For buyers who used a low deposit option to enter the market, the end of a fixed term is a useful checkpoint. If your property has increased in value and you've paid down some of the principal, you might now have more than 20% equity and can refinance to remove any lenders mortgage insurance component or access better rates reserved for lower-risk borrowers.

Fixing During a Rate Cycle

Fixed rates reflect what lenders expect wholesale funding costs to do over the fixed period, not where variable rates are today. When the Reserve Bank is expected to cut rates, fixed rates are often lower than variable rates. When the Reserve Bank is expected to hold or raise rates, fixed rates tend to be higher.

Buyers sometimes fix because they believe rates are going up, but the market has usually priced that expectation into fixed rates already. The decision to fix should be based on whether you value certainty over flexibility, not whether you think you can outsmart the rate cycle.

In mid-2026, variable rates have been relatively stable after a period of increases, and fixed rates are being priced on the assumption that cuts are possible over the next 12 to 18 months. That doesn't mean fixing is a poor choice, it just means the value of fixing is in the certainty, not in locking in a rate that's materially lower than where variable rates will average over the next few years.

For buyers in Cobram working with a mortgage broker, the conversation should focus on your circumstances, not on predicting the Reserve Bank. If your income is variable or your budget is tight, the certainty of a fixed rate might be worth paying a small premium for, even if variable rates end up lower on average.

Choosing a Fixed Term That Fits Your Timeline

The right fixed term depends on what you expect to happen over the next few years. If you're planning to stay in the property long-term, have stable income, and want to lock in your repayments, a three or five-year fixed term might suit. If you expect changes, whether in work, family, or finances, a shorter term or a split structure gives you more room to adjust.

For first home buyers in Cobram, where the property market is more stable and affordable than metro areas but income can be more variable, flexibility often matters more than an extra 0.20% off the rate. A fixed term should give you certainty without boxing you in, and the term you choose should reflect how long you're confident your current circumstances will hold.

Call one of our team or book an appointment at a time that works for you. We'll walk through your budget, your timeline, and the loan structures that give you the certainty you need without locking away the flexibility you might want later.

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