Fixed rate home loans give you payment certainty for a set period, but they come with specific rules around extra repayments that can cost you thousands if you get them wrong.
Most lenders allow between $10,000 and $30,000 in extra repayments per year on a fixed rate loan without penalty. Go beyond that threshold and you'll face break costs that can easily reach five figures, particularly if rates have fallen since you locked in. The restriction exists because lenders hedge their funding costs when you fix, and early repayment disrupts that hedge.
How Much Can You Repay Extra on a Fixed Rate?
The annual extra repayment limit varies by lender and product. Standard bank fixed rate products typically allow $10,000 to $20,000 per year in additional principal payments without penalty. Some non-major lenders offer $30,000 annual limits, and a small number permit unlimited extra repayments even on fixed terms, though these products often carry slightly higher advertised rates to compensate for the additional flexibility.
In our experience working with clients across Campbelltown and the broader southwest corridor, buyers who expect windfalls such as annual bonuses, tax refunds, or periodic contract income should confirm the exact limit in writing before settling. A buyer on a three-year fixed term earning $120,000 with a $20,000 annual limit can comfortably deploy their tax refund and bonus each year without breaching the cap. A buyer expecting a $50,000 inheritance in year two of the same fixed term would exceed the limit and trigger break costs unless they structure the loan differently from the outset.
The limit resets each anniversary of settlement, not each calendar year. If you settle in March, your $20,000 limit applies from March to March, and any unused portion does not roll over.
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What Happens If You Exceed the Limit?
Break costs apply when you repay more than the permitted annual amount or discharge the loan entirely during the fixed period. The cost is calculated based on the difference between the rate you locked in and the lender's current wholesale funding cost for the remaining term. If you fixed at 6.2 per cent for three years and rates have since dropped, the lender has lost the margin they expected to earn over that period, and they pass that cost to you.
Consider a Campbelltown buyer who fixed $800,000 at 6.5 per cent in early 2025 for five years. By mid-2026, with rates falling and the lender's equivalent fixed product now priced at 5.8 per cent, attempting to repay an extra $100,000 beyond the annual cap could trigger a break cost in the range of $15,000 to $25,000, depending on how the lender calculates the economic loss. That cost would typically be deducted from the repayment or added to the remaining balance if refinancing. The exact formula varies by institution, but the principle is consistent: the bigger the rate gap and the longer the remaining term, the higher the cost.
Break costs can also apply when selling and discharging the loan, refinancing to another lender, or switching from a fixed rate to a variable rate mid-term. Buyers who think they may sell within the fixed period or who anticipate needing to access equity for renovations or investment should weigh these risks before locking in.
Should You Choose Variable, Fixed, or Split?
A variable rate loan allows unlimited extra repayments and full redraw or offset access without penalty. If you have irregular income, expect lump sums, or want the flexibility to pay down debt aggressively, variable is the safer structure even if the rate is slightly higher at the outset.
A split loan combines a fixed portion for stability and a variable portion for flexibility. Splitting 50/50 or 60/40 allows you to lock in part of your repayment while directing bonuses, tax refunds, and other lump sums to the variable portion without restriction. This structure is common among Campbelltown buyers who value both certainty and control, particularly those working in sectors with performance-based pay or seasonal income patterns.
Fixed rates suit buyers with stable, salaried income who prioritise budget certainty and do not expect to make large additional payments beyond the annual cap. They also suit buyers entering the market during a rising rate environment who want to lock in before further increases. With the RBA having raised rates three times in early 2026 and further tightening still possible, buyers fixing now are doing so in a materially different environment than those who fixed in late 2023 or early 2024.
Offset Accounts and Fixed Rates
Most true fixed rate home loans do not offer a linked offset account. The fixed rate is priced on the assumption that the full loan balance remains outstanding and earning interest for the lender. A handful of lenders offer a partial offset on fixed loans, typically capped at 10 to 20 per cent of the loan balance, but the fixed rate on these products is usually higher than a standard fixed loan to compensate.
If you want full offset functionality, you need a variable rate loan or the variable portion of a split. For buyers building cash reserves for renovations, holding deposit bonds, or accumulating savings for investment, the offset on a variable loan delivers better value than a fixed rate with restricted extra repayment capacity. The tax treatment is also cleaner: offset balances reduce interest charged without creating a repayment that could later be redrawn and potentially compromise deductibility if the loan is ever converted to investment purposes.
Portable Loans and Fixed Rates
Portability allows you to transfer your existing home loan to a new property without breaking the fixed term or triggering discharge costs. Not all lenders offer portability, and those that do impose conditions: the new property must settle within a short window of the old property, the loan amount usually cannot increase beyond a small threshold, and you must meet current serviceability standards even though you are not applying for a new loan.
For Campbelltown buyers planning to upsize or relocate within the next few years, portability offers a way to preserve a low fixed rate locked in during a prior period while avoiding break costs. A buyer who fixed $700,000 at 5.9 per cent in 2024 and now wants to move to a larger home in Menangle Park or Spring Farm can port that rate to the new property, provided the lender agrees and the new loan amount does not exceed the old balance by more than the lender's tolerance, often around 10 to 20 per cent. Any additional borrowing required would be written as a separate loan at current rates, effectively creating a split structure.
Portability is less common among non-major lenders and is rarely available on low-rate special offers or cashback products. Buyers for whom relocation is likely should confirm portability is included and understand the conditions before settling.
Refinancing a Fixed Rate Loan
Refinancing during a fixed term means discharging the loan early, which triggers break costs if rates have fallen or if you exceed the remaining extra repayment allowance. Refinancing makes sense when the interest saving over the remaining fixed period exceeds the break cost, or when you need to access equity and your current lender will not extend further credit.
We regularly see this with buyers who fixed in 2023 and 2024 at rates above 6 per cent and now face a two- or three-year tail on the fixed term while current fixed and variable rates have dropped. A detailed break cost estimate from the current lender and a comparison of total interest saved over the remaining term will show whether refinancing delivers a net benefit. In some cases the break cost eliminates any saving; in others, particularly where the rate differential is large and the remaining term is long, the saving is material even after accounting for the penalty.
Buyers should also consider the refinance in the context of borrowing capacity. If your income has increased or your expenses have decreased since the original loan was written, refinancing can be an opportunity to restructure, consolidate other debts, or access equity for investment or renovation, not just to chase a lower rate.
Call one of our team or book an appointment at a time that works for you. We'll run the numbers on your current fixed rate, calculate any break cost, and show you exactly what your options are whether you're looking to refinance, restructure, or simply understand what flexibility you actually have in your loan right now.
Frequently Asked Questions
Can I make extra repayments on a fixed rate home loan?
Yes, most lenders allow between $10,000 and $30,000 in extra repayments per year on a fixed rate loan without penalty. The exact limit depends on your lender and loan product. Exceeding the annual cap triggers break costs based on the rate difference and remaining fixed term.
What are break costs on a fixed rate loan?
Break costs are penalties charged when you repay more than the annual extra repayment limit or discharge a fixed loan early. The cost is calculated based on the difference between your fixed rate and the lender's current wholesale funding cost for the remaining term. If rates have fallen since you fixed, the break cost can be substantial.
Should I choose a split loan instead of a full fixed rate?
A split loan gives you both certainty and flexibility by fixing part of your loan and keeping the rest variable. You can direct lump sums and bonuses to the variable portion without restriction while enjoying fixed repayments on the locked portion. This suits buyers with irregular income or those who want to pay down debt faster without triggering break costs.
Do fixed rate loans have offset accounts?
Most true fixed rate loans do not offer a linked offset account. A small number of lenders provide partial offset on fixed loans, typically capped at 10 to 20 per cent of the balance, but the fixed rate is usually higher to compensate. For full offset functionality, you need a variable rate loan or the variable portion of a split.
Can I refinance a fixed rate home loan?
Yes, but refinancing during the fixed term triggers break costs if rates have fallen or you exceed your remaining extra repayment allowance. Refinancing makes sense when the interest saving over the remaining period exceeds the break cost, or when you need to access equity and your current lender cannot help. Always request a break cost estimate before proceeding.
