Beginner's Guide to Fixed, Variable & Split Loans

Fixed vs Variable: What First Home Buyers Need to Know

A fixed rate locks your interest rate for a set term, usually between one and five years. A variable rate moves with the market and gives you access to features like an offset account and unlimited extra repayments. A split loan divides your borrowing between both structures.

When you fix your rate, your repayment stays the same regardless of what the Reserve Bank does. That certainty helps with budgeting, particularly if you're stretching to afford the property. The downside is limited flexibility. Most fixed loans cap extra repayments at $10,000 to $30,000 per year, and you typically can't link an offset account. If you need to break the fixed term early, the lender may charge break costs that run into thousands of dollars.

A variable rate gives you full access to your loan. You can make unlimited extra repayments, link an offset account to reduce interest, and redraw funds if needed. Rates can move up or down, so your repayment amount can change. For buyers who expect income growth or plan to put lump sums against the loan, a variable structure usually makes more sense.

Why First Home Buyers in Tasmania Are Considering Split Loans

A split loan lets you fix part of your borrowing and keep the rest variable. You get some rate protection and some flexibility.

Consider a buyer purchasing in Glenorchy with a deposit of 10%. They're eligible for the Australian Government 5% Deposit Scheme but choose to put down more to reduce their loan size. They borrow $450,000 and split it 50-50. They fix $225,000 at a rate that won't move for three years, giving them a stable base repayment. The other $225,000 sits on a variable rate with an offset account attached. They direct their savings into the offset, which reduces the interest charged on that portion of the loan. If rates drop, the variable portion benefits immediately. If rates rise, half the loan is protected.

This structure works for buyers who want certainty but don't want to lock themselves out of offset benefits entirely. It also suits households where one income is stable and the other is variable or commission-based.

You can split a loan into more than two portions. Some buyers fix 70% and keep 30% variable. Others do three splits with different fixed terms. There's no standard split ratio, and not all lenders offer the same flexibility. When structuring a home loan, the split ratio should reflect your actual cash flow and savings pattern, not a generic recommendation.

How Fixed Rate Break Costs Are Calculated

Break costs apply when you exit a fixed rate loan before the fixed term ends. The lender calculates the cost based on the difference between your fixed rate and the current wholesale rate the lender can earn by reinvesting your principal.

If you fixed at 5.5% for three years and rates have since dropped, the lender loses income when you exit early. They charge you the difference. If rates have risen since you fixed, the break cost may be zero because the lender can reinvest your money at a higher rate.

Break costs are not penalty fees. They're a compensation calculation. The formula involves your remaining loan balance, the remaining fixed term, and the gap between your rate and the lender's current funding rate. On a $400,000 fixed loan with two years remaining, a 1% rate gap could trigger break costs around $8,000. That amount disappears if you wait until the fixed term expires.

You can usually find the break cost estimate in your lender's online portal or by calling them directly. If you're refinancing or selling before your fixed term ends, get that figure before you commit to anything.

Offset Accounts vs Redraw: What the Difference Means for Your Cash

An offset account is a transaction account linked to your home loan. The balance in the offset reduces the loan balance used to calculate interest. If you have a $400,000 loan and $30,000 in your offset, you only pay interest on $370,000. The $30,000 stays accessible. You can spend it anytime without asking the lender.

Redraw lets you access extra repayments you've already made against the loan. If you've paid an extra $20,000 into your loan over two years, you can redraw that amount if you need it. Some lenders charge redraw fees. Others limit how often you can redraw or require a minimum amount. Some lenders have removed redraw access entirely on certain loan products.

The distinction matters because offset balances are always your money. Redraw balances are technically held by the lender, and access can be restricted if your circumstances change. In our experience, buyers who keep an emergency buffer prefer offset accounts because the funds remain separate and unrestricted.

Offset accounts are almost never available on fixed rate loans. If you fix your entire loan, you lose offset access for the fixed term. A split loan lets you attach an offset to the variable portion while keeping part of the loan fixed.

Should You Fix After Using a Low Deposit Scheme?

If you're using the Australian Government 5% Deposit Scheme, your loan structure options depend on your participating lender. Not all lenders in the scheme offer fixed rates. Some only offer variable. Others offer both, plus split options.

Buyers entering the market with a 5% deposit often feel more exposed to rate rises because they're borrowing a larger amount relative to the property value. Fixing part or all of the loan can reduce that anxiety. But you need to weigh the benefit of certainty against the cost of losing flexibility at a time when you might have less cash buffer.

Lenders Mortgage Insurance (LMI) is waived under the 5% Deposit Scheme, which saves thousands of dollars. That saving doesn't change whether you fix or keep the loan variable. LMI is a one-off cost based on your deposit size, not your loan structure. You can read more about low deposit options and LMI on our first home buyers page.

If your deposit is tight and you expect to receive cash gifts, bonuses, or other lump sums over the next two years, keeping the loan variable or using a split gives you the flexibility to reduce the balance quickly without hitting fixed loan repayment caps.

What Happens When Your Fixed Term Ends

When a fixed term expires, your loan automatically rolls onto the lender's standard variable rate unless you choose a new fixed term or refinance. The standard variable rate is almost always higher than the lender's discounted variable rate offered to new customers.

At the end of a fixed term, contact your lender or broker at least 90 days before expiry. You can negotiate a better variable rate, refix at a new rate, or move to another lender. If you do nothing, your repayment will likely increase because the standard variable rate is typically 0.5% to 1% higher than a negotiated rate.

Some lenders send reminders when your fixed term is ending. Others don't. Set your own reminder six months before the fixed term expires so you have time to compare options. If you're already working with a broker, ask them to flag the expiry date and prepare alternatives in advance. We track fixed rate expiry dates for our clients and reach out well before the rollover happens. You can also check our fixed rate expiry help page for guidance on what to do as your term ends.

Call one of our team or book an appointment at a time that works for you. We'll walk through your deposit size, your cash flow, and the features that matter for your situation. We know the lenders who offer genuine flexibility on splits and the ones who don't. You can book an appointment online or call us directly. We work with buyers right across Tasmania and throughout Australia, and every conversation starts with your name and your numbers, not a script.

Frequently Asked Questions