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

A fixed interest rate holds your repayment amount steady for a set period, usually one to five years.

For ADF members stationed at Laverton, the decision to fix part or all of your first home loan depends on how much certainty you need against how much flexibility you're willing to give up. Fixed rates remove the risk of rate rises during the fixed term, but they also lock you out of offset accounts, restrict extra repayments, and can charge break costs if you need to sell or refinance early. Postings, deployments, and the possibility of a transfer make flexibility a genuine consideration, not just a theoretical one.

How a Fixed Interest Rate Works for First Home Buyers

You agree to a rate that won't change for the fixed period. The lender calculates your repayments based on that rate, and those repayments stay the same regardless of what happens in the wider market. At the end of the fixed term, your loan reverts to the lender's standard variable rate unless you negotiate a new fixed term or refinance.

Most lenders allow you to fix between one and five years. Some offer seven or ten-year terms, though these are less common. The rate you're offered depends on your deposit size, the lender, and the term you choose. Shorter fixed terms usually carry lower rates than longer ones because the lender takes on less interest rate risk over a shorter window.

Consider a member buying in Laverton or nearby Williams Landing with a 10% deposit under the Australian Government 5% Deposit Scheme. They take out a $500,000 loan. They fix $250,000 at a rate that holds for three years and leave $250,000 on a variable rate with an offset account. The fixed portion gives them a known repayment amount. The variable portion lets them park savings, make extra repayments when cash flow allows, and adjust the loan if circumstances change.

When Fixing Makes Sense for Defence Members

Fix when you need budget certainty and you're confident you won't need to sell or refinance during the fixed term.

If you're posted to Laverton on a three-year rotation and plan to hold the property as an investment when you move, fixing for two or three years gives you predictable repayments while you're living there. If rates rise during that time, you're protected. If you plan to stay in the area for the medium term or you're buying close to family in Melbourne's west, a longer fixed term might suit.

Don't fix if you expect a posting before the fixed term ends and you're planning to sell. Break costs apply when you exit a fixed loan early, and they can run into thousands of dollars depending on how much rates have moved since you locked in. In our experience, members who fix the full loan amount and then receive a posting notice 18 months later face a choice between paying break costs or holding the property and managing it remotely.

Split Loans Give You Both Certainty and Flexibility

A split loan divides your borrowing between fixed and variable portions. You choose the ratio based on your circumstances.

Splitting 50/50 is common, but there's no rule. You might fix 70% if certainty matters more, or fix 30% if you want most of your loan sitting in an offset structure. The fixed portion protects you from rate rises. The variable portion gives you access to an offset account, lets you make unlimited extra repayments, and keeps your options open if you need to refinance or sell.

As an example, a first home buyer purchasing in Altona Meadows fixes $300,000 of a $450,000 loan for three years and leaves $150,000 variable. They use the offset account linked to the variable portion to hold their living expenses and emergency fund. The offset reduces the interest charged on that $150,000. The fixed portion gives them a stable base repayment amount that doesn't shift when the Reserve Bank adjusts rates. When the fixed term ends, they reassess based on their posting status and the rate environment at that time.

What You Give Up When You Fix

No offset account on the fixed portion. Limited or no extra repayments without penalty. Break costs if you exit early.

Most lenders allow $10,000 to $30,000 in extra repayments per year on a fixed loan, but anything beyond that incurs a fee. If you're expecting a payout, inheritance, or bonus and you plan to put that money straight into the loan, a fixed rate will restrict how much you can apply without penalty. Offset accounts don't work on fixed loans because the lender has priced the loan assuming you'll pay interest on the full amount for the fixed term.

Break costs are calculated based on the difference between the rate you fixed at and the rate the lender can now lend that money at. If you fixed at 6% and rates have since dropped to 5%, the lender loses income when you exit early. They charge you the difference. If rates have risen since you fixed, break costs are usually zero because the lender can re-lend at a higher rate. You won't know the break cost until you ask the lender to calculate it.

Stamp Duty Concessions and Grants Don't Change the Fixed Rate Decision

Victoria offers full stamp duty exemption on properties up to $600,000 and a sliding concession up to $750,000 for eligible first home buyers. The First Home Owner Grant of $10,000 applies to new homes valued up to $750,000. Whether you fix or stay variable doesn't affect your access to these concessions, but the amount you borrow after applying the stamp duty saving might influence how much you choose to fix.

If the stamp duty exemption reduces the cash you need at settlement, you might have more in savings to put into an offset account, which makes the variable portion of a split loan more effective. If you're using the full exemption and still borrowing at 90% or 95% of the property value, fixing a larger portion might give you more confidence in managing repayments on a higher loan amount.

How to Decide Between One, Three, or Five Year Fixed Terms

Shorter terms give you lower rates and less commitment. Longer terms give you more protection but less flexibility.

A one-year fixed term suits members who want a small buffer against rate rises but expect their circumstances to change soon. It's also useful if you think rates might fall in the near term and you don't want to be locked in at a higher rate for too long. A three-year term is the most common choice because it aligns with typical posting cycles and gives enough protection to be useful without over-committing. A five-year term makes sense if you're staying in the area long-term, you're buying your forever home, and you want maximum certainty.

Rates for five-year fixed terms are usually higher than for three-year terms because the lender is taking on more risk. The longer the term, the more chance that rates will move against the lender's position. Compare the rate difference between terms before deciding. If a five-year fixed rate is only 0.1% higher than a three-year rate, the extra certainty might be worth it. If it's 0.5% higher, you're paying a significant premium for that extra two years.

Pre-Approval and Rate Locks

Pre-approval gives you a borrowing limit and confirms your eligibility, but it doesn't lock in a rate. Most lenders allow you to lock a fixed rate once you have a signed contract of sale. The rate lock usually lasts 90 days, which covers the period between contract exchange and settlement.

If you're working toward getting loan pre-approval and you're planning to fix, ask the lender what rate lock period they offer and whether you can extend it if settlement is delayed. Construction loans sometimes take longer than 90 days to settle, and if your rate lock expires before settlement, you'll be offered whatever the lender's current fixed rate is at that time.

Rate locks protect you if fixed rates rise between contract and settlement, but they don't help you if rates fall. You're committed to the locked rate once you accept it. Some lenders charge a fee to lock a rate. Others include it as part of the application process. Check before you commit.

Call one of our team or book an appointment at a time that works for you. We'll walk through your posting timeline, your deposit structure, and the fixed and variable options that match your circumstances, then put together a loan structure that holds up whether you stay at Laverton or get posted across the country.

Frequently Asked Questions