Fixed Rate Loans and Extra Repayments for First Home Buyers

Most lenders cap extra repayments on fixed rate home loans at $10,000 to $30,000 per year.

If you're working in tech with RSU vesting schedules or annual bonuses, this matters from day one. Locking in your interest rate protects you against rises, but the repayment limits can conflict with how your income actually lands in your account.

How Extra Repayment Limits Work on Fixed Rate Loans

Fixed rate loans typically allow between $10,000 and $30,000 in extra repayments per year without penalty. Beyond that limit, lenders charge break costs, which can run into thousands of dollars depending on rate movements since you locked in.

Consider a buyer who took out a $600,000 fixed rate loan in March and received a $40,000 RSU vesting in November. They want to put the full amount against their mortgage. With a $20,000 annual cap, they can only apply $20,000 without triggering break costs. The remaining $20,000 either sits in a savings account earning minimal interest or gets invested elsewhere. If they exceed the cap and pay the penalty, they might forfeit most of the interest saving they intended to gain.

Some lenders offer higher caps or no caps at all on certain fixed rate products, but these often come with a slightly higher interest rate. The decision comes down to whether you expect irregular large payments during the fixed period. If you're coming up on vesting RSUs or bonuses that you plan to use as genuine savings, the cap becomes a concrete constraint, not just a theoretical one.

Split Rate Loans: Balancing Protection and Flexibility

A split rate loan divides your borrowing between fixed and variable portions. You choose the proportion.

In our experience, many first home buyers split 50-50 or 60-40 between fixed and variable. The fixed portion locks in certainty on repayments for a set period, while the variable portion gives full flexibility for extra repayments, access to an offset account, and the ability to make unlimited additional payments without penalty.

As an example, a software engineer borrowing $700,000 might fix $400,000 for three years and leave $300,000 on a variable rate with an offset account. Their regular salary covers the minimum repayments on both. When they receive a $35,000 bonus, they can deposit it into the offset account linked to the variable portion, reducing interest immediately without hitting any cap. The fixed portion protects them if rates climb, while the variable portion adapts to their income structure.

The proportion you choose depends on your income pattern and risk tolerance. If you're confident in regular bonuses or vesting schedules, a larger variable portion makes sense. If your base salary is your only reliable income and you want maximum protection against rate rises, a higher fixed proportion might suit you. There's no default split that works for everyone, which is why understanding your income is part of the application process.

Offset Accounts vs Redraw Facilities

Variable rate loans typically offer offset accounts. Fixed rate loans rarely do. Instead, they offer redraw facilities, but these come with conditions.

An offset account is a transaction account linked to your loan. The balance in the account offsets the loan balance when calculating interest, but the money remains accessible at any time. If you have a $500,000 loan and $30,000 in your offset account, you pay interest on $470,000. You can spend that $30,000 whenever you want without asking the lender.

A redraw facility lets you access extra repayments you've made above the minimum, but the lender controls access. Some lenders process redraw requests within a day. Others take several days and may charge a fee. If you need that money urgently, the delay matters. Redraw is also subject to the lender's terms, which can change. In some situations, lenders have restricted redraw access when borrowers fall into hardship, though this is uncommon.

If you're buying your first home and want immediate access to surplus funds without restriction, a variable rate loan with an offset account gives you that. If you're willing to trade some access speed for rate certainty, a fixed rate loan with redraw can work, provided you understand the access conditions before you commit.

Fixed Rate Break Costs: How the Calculation Works

Break costs apply when you pay more than the allowed extra repayment amount, refinance, or sell during a fixed rate period. The cost depends on the difference between your locked-in rate and the current wholesale rate the lender can get on the money you're repaying early.

If rates have risen since you fixed, break costs are usually zero or minimal. The lender can re-lend that money at a higher rate, so they're not losing income. If rates have fallen, the lender loses the difference between what you're paying and what they can now earn, and they pass that cost to you.

The calculation factors in the remaining term on your fixed period, the amount you're repaying early, and the rate differential. A borrower with two years left on a fixed term who wants to refinance after rates have dropped 0.50% might face break costs of $5,000 to $15,000 on a $500,000 loan, depending on the lender's calculation method. Some lenders use a formula that's more favourable to borrowers. Others don't. You won't know the exact cost until you ask, which is why it's worth checking before you lock in how each lender calculates it.

If you're considering a fixed rate loan and there's any chance you'll sell, refinance, or receive large lump sums during the fixed period, factor potential break costs into your decision. They're not always prohibitive, but they can be.

Low Deposit Options and Fixed Rates

If you're buying your first home with a deposit under 20%, you'll pay Lenders Mortgage Insurance regardless of whether you fix or go variable. The LMI cost doesn't change based on your rate type.

What does change is your flexibility during the loan term. First home buyers often use government schemes like the First Home Loan Deposit Scheme, which allows you to borrow with a 5% deposit without paying LMI. If you're using one of these schemes and expecting significant income growth or bonuses in the next few years, the extra repayment cap on a fixed rate loan becomes more relevant.

Some lenders offering low deposit options also have lower caps on extra repayments for fixed rate loans, sometimes as low as $10,000 per year. If you're borrowing 95% and planning to pay down the loan quickly once your income ramps up, confirm the cap before you commit to a fixed term. A variable rate loan or a split structure might align with your repayment intentions over the first few years.

When to Lock in a Fixed Rate as a First Home Buyer

You lock in a fixed rate when the certainty of your repayment amount outweighs the flexibility you're giving up. If your budget is tight and a rate rise would strain your repayments, fixing provides protection. If you're comfortably servicing the loan and expect irregular large payments, a variable rate or split often works in your favour.

For first home buyers in tech, the decision often hinges on your income structure. If you're on a stable base salary with minimal variable income, a fixed rate can make budgeting straightforward for three to five years. If you're expecting bonuses, RSU vesting, or commission payments, the extra repayment cap on a fixed rate loan can limit how quickly you reduce your debt.

There's no obligation to choose one or the other for the full loan term. Many borrowers fix for two or three years, then reassess when the fixed period ends. Your first home loan application can include a fixed rate now and a refinance to variable later, or vice versa, depending on where rates and your income sit at the time.

Call one of our team or book an appointment at a time that works for you. We'll walk through your income structure, repayment intentions, and the specific caps and conditions each lender applies to their fixed rate products.

Frequently Asked Questions