If you want to make extra repayments on a fixed rate home loan, check the cap on your loan before you sign. Most fixed loans limit how much extra you can pay each year, and going over that limit can trigger break costs.
For Box Hill households, the choice is rarely just fixed or variable. It is about how much certainty you need, and how much spare cash you expect to put towards the loan. This article walks through that decision.
Can You Make Extra Repayments on a Fixed Rate Home Loan?
Yes, but many lenders cap extra repayments on a fixed rate loan each year. Caps vary between lenders and products, so the cap in your loan contract is the number that counts.
If you pay more than the cap during the fixed term, the lender may charge break costs on the excess. A variable rate loan usually allows unlimited extra repayments, which is a key trade-off when choosing certainty over flexibility.
It also helps to ask whether a cap applies per financial year or per loan anniversary, because this changes when you can pay a lump sum.
When a Fixed Rate Suits an Owner Occupied Home Loan
A fixed rate suits you when a predictable repayment matters more than the chance to pay the loan down faster. This often applies to a household with a tight budget, a single income, or a new baby on the way.
The main trade-off is that if variable rates fall, you stay on your higher fixed rate. If you need to sell or refinance during the fixed term, break costs may apply, and these depend on how rates have moved since you fixed.
A fixed rate also tends to suit people who will not be tempted to chase a lower repayment elsewhere. If you think you will want to refinance within a year or two, a fixed term may not suit you.
How Much Do Extra Repayments Actually Save?
Extra repayments reduce your loan balance sooner, so you pay interest on a smaller amount. The earlier you start, the more the effect compounds.
As an example, consider a Box Hill couple with a $600,000 loan over 30 years at an illustrative rate of 6.75% p.a. Their minimum principal and interest repayment is about $3,891 a month. They decide to add $300 a month on top of this, which is roughly 8% more.
Because that $300 goes straight to principal, their balance falls faster each month. Over time, they would pay the loan off earlier than the 30 year term, and pay less total interest than if they paid only the minimum. A calculator can show the exact figures for your numbers. This is illustrative only, and your real rate will depend on your lender and your deposit.
The catch is that if their loan were fixed with a cap, they would need to keep the $300 a month within the cap. Their annual extra of $3,600 would suit a lender with a cap of at least that amount, but not one with a lower limit.
Split Rate Loans: Fixing Part, Keeping Part Flexible
A split rate loan divides your borrowing into a fixed portion and a variable portion. You get repayment certainty on one part and unlimited extra repayments on the other.
For example, a buyer might fix half the loan and leave half variable. Any bonus or tax refund can go into the variable half without hitting a cap. The trade-off is that you only get partial protection if rates rise, and partial benefit if they fall.
Some lenders set a minimum amount for each portion, so it is worth checking which products allow the split you want. Our home loans page outlines the structures we can compare across lenders.
Offset Accounts and Fixed Rates: What to Check
Many lenders do not attach a full offset account to a fixed rate loan, or they limit it. An offset account is a transaction account whose balance reduces the interest charged on your loan.
If an offset matters to you, ask whether it is available on the fixed portion, and whether it has an extra fee. A variable portion with a linked offset can be a useful pairing in a split structure. Offset accounts often come with a higher rate or annual fee, so the savings need to outweigh that cost.
What Happens When Your Fixed Term Ends?
When a fixed term ends, your loan usually rolls onto the lender's variable rate, which may be higher than what you could get elsewhere. You can instead re-fix, switch to variable, or refinance to another lender.
This is the best moment to review your loan, because you can leave without break costs once the fixed term has finished. Our fixed rate expiry page explains the options, and refinancing covers moving to a different lender. A loan health check is a good starting point if your term ends in the next few months.
Choosing Between Fixed and Variable Before You Apply
The right choice depends on your cash flow, your plans for the next few years, and how much you expect to pay above the minimum. If you are unsure, a split loan is a common middle path.
Borrowing capacity also affects what you can choose, since lenders assess your repayments using their own tests. You can read more on borrowing capacity before speaking with a broker.
Call one of our team or book an appointment at a time that works for you, and we will work through fixed, variable and split options with your numbers.
Frequently Asked Questions
Can I make extra repayments on a fixed rate home loan?
Often yes, but many lenders cap the amount you can add each year. Going over the cap can trigger break costs, so check your loan contract.
What is a split rate home loan?
A split loan divides your borrowing into a fixed part and a variable part. The variable part usually allows extra repayments, while the fixed part gives repayment certainty.
Do fixed rate loans come with an offset account?
Many do not offer a full offset on the fixed portion, or they limit it. Ask your lender or broker, and check whether any fee outweighs the interest savings.
What happens when my fixed term ends?
Your loan usually moves to the lender's variable rate. You can re-fix, switch to variable or refinance, and break costs generally do not apply once the term has finished.
