The headline rate and fixed term
The fixed interest rate is usually the first thing compared between offers, but it's worth looking at it alongside the length of the fixed term, commonly one to five years in Australia. A lower rate on a longer term isn't automatically better if your circumstances might change, such as planning to sell, refinance, or make significant extra repayments during that period. It's also worth checking what rate applies after the fixed term ends, since many loans revert to a variable rate that could be higher, meaning it's worth planning ahead for that transition rather than assuming the fixed rate continues indefinitely.
Break costs
Break costs, sometimes called early repayment costs, can apply if you exit a fixed rate loan before the fixed term ends, whether by refinancing, selling the property, or making repayments beyond any permitted limit. These costs are generally calculated based on the difference between the original fixed rate and current wholesale rates for the remaining fixed period, meaning they can be substantial if rates have moved significantly since you fixed. Because break costs can be difficult to estimate in advance, it's worth asking the lender directly how they're calculated and considering how likely you are to need flexibility during the fixed term before committing.
Caps on extra repayments
Most fixed rate loans in Australia limit how much extra you can repay each year without triggering a fee or break cost, often expressed as a dollar cap or a percentage of the original loan balance. If you expect to make significant extra repayments, for example from a bonus or savings, it's worth checking this cap carefully, since exceeding it can result in additional charges. Some lenders offer more generous caps than others, and this can be a meaningful point of difference between otherwise similar offers, particularly for borrowers focused on paying down their loan faster.
Offset and redraw access
Offset accounts, which reduce the interest charged by offsetting savings against the loan balance, are less commonly available in full on fixed rate loans, and where they are offered, it's often only a partial offset facility. Redraw facilities may also be more limited compared to variable loans. If having full offset access is important to you, it's worth checking exactly what's offered on each fixed rate product, since some lenders provide only limited or no offset functionality during the fixed period. Comparing this feature carefully can prevent an unwelcome surprise if you were expecting full flexibility similar to a variable loan.
Weighing it all up
Choosing between fixed loan offers usually comes down to balancing the certainty of a fixed rate and repayment amount against the flexibility you might need over the fixed term. It can help to consider your likely plans over the next one to five years, including whether you might sell, refinance, or want to make large extra repayments, and to compare how each lender's break costs, repayment caps and offset access align with those plans. Reading the key facts sheet for each offer, which lenders are generally required to provide, can help you compare features side by side rather than relying on the rate alone.
Key points
- Compare the fixed term length and revert rate, not just the headline rate
- Break costs can apply if you exit the fixed loan early
- Extra repayment caps limit how much you can pay off without a fee
- Offset access on fixed loans is often partial or limited
- Match the loan features to your likely plans over the fixed term
Frequently asked questions
What happens when the fixed term ends?
The loan usually reverts to a variable rate set by the lender, unless you choose to refix or refinance beforehand.
Are break costs always charged?
They generally only apply if you exit the loan before the fixed term ends and current rates have moved against the lender's position.
Can I make extra repayments on a fixed loan?
Usually yes, but typically up to an annual cap, beyond which fees or break costs may apply.
Is offset available on fixed rate loans?
Sometimes, but often only as a partial offset facility, so it's worth checking each lender's specific offer.
Is a fixed rate always cheaper than variable?
Not necessarily. It depends on how rates move over the fixed term, so it's more about certainty than guaranteed savings.