Proven Tips to Choose Fixed Rate Features as a First Home Buyer

A fixed rate locks your repayments for a set period, usually one to five years. For self-employed borrowers buying their first home, that certainty protects you when income fluctuates, but most fixed rate products restrict your ability to make extra repayments or access funds once they are paid down.

Fixed Versus Variable: What Matters When Income Changes

A fixed interest rate holds your repayment amount steady regardless of what the Reserve Bank does. A variable interest rate moves with the market, which means your repayments can rise or fall. Self-employed borrowers often prefer the predictability of a fixed rate during the first few years of ownership because it removes one source of uncertainty when income can vary between months or quarters. The downside is that most fixed rate loans limit extra repayments to around $10,000 or $20,000 per year, and many do not allow an offset account while the rate is fixed.

Consider a carpenter buying their first home who bills $120,000 in a strong year but closer to $90,000 in a quieter one. Locking a portion of the loan at a fixed rate means the mortgage repayment stays constant even when work slows. That budgeting certainty can be the difference between holding the property comfortably and scrambling to cover costs.

Partial Fix: Splitting Your Loan Between Fixed and Variable

You do not have to fix the entire loan. Splitting the amount between a fixed portion and a variable portion lets you lock in repayment certainty on part of the debt while keeping flexibility on the rest. A common approach is to fix 50% to 70% of the loan and leave the remainder variable with an offset account attached. The variable portion lets you park surplus income from high-earning months and reduce the interest charged on that part of the loan, while the fixed portion protects your baseline repayment.

As an example, a graphic designer purchasing with a 10% deposit might fix $250,000 of a $350,000 loan for three years and leave $100,000 variable with full offset access. When a large project pays out, the extra income sits in the offset account and reduces interest on the variable portion without breaching the fixed loan's repayment cap. When income drops, the fixed portion holds the monthly commitment steady.

What You Give Up When You Fix

Most lenders impose a cap on additional repayments during the fixed period, typically between $10,000 and $30,000 per year depending on the product. If you exceed that cap, some lenders charge a penalty. Redraw facilities, which let you access extra repayments you have made, are often unavailable or restricted on fixed rate loans. Offset accounts are rarely available on fully fixed loans, though some lenders do offer them on split arrangements where only part of the loan is fixed.

If you refinance or sell the property before the fixed term ends, you may be charged break costs. These costs reflect the lender's loss when you exit a fixed rate contract early, and they can be substantial if rates have fallen since you locked in. Self-employed borrowers who expect business changes, such as selling a trade vehicle or receiving a large contract payout, should factor in whether they will want access to those funds during the fixed period.

Fixed Rate Length: One Year Versus Five

Shorter fixed terms, such as one or two years, typically carry slightly higher rates than three-year terms but give you more flexibility to refinance or restructure sooner. Longer terms, such as four or five years, lock in certainty for a greater period but increase the chance you will face break costs if your circumstances change. Self-employed first home buyers often favour two or three-year fixed terms because they match the rhythm of business cycles without locking you in beyond a realistic planning horizon.

If you expect your income to stabilise or grow within a couple of years, a shorter fixed term lets you reassess your loan structure sooner and potentially access lower rates or better features when the fixed period ends. If your income is volatile and you want maximum protection, a longer term provides that, but you trade away the ability to respond to opportunities such as making lump sum repayments from a windfall project.

How Lenders Assess Self-Employed Borrowers on Fixed Rates

Lenders assess your home loan application using the same income verification process regardless of whether you choose fixed or variable. As a self-employed borrower, that usually means two full years of tax returns and often business financials or a letter from your accountant. Some lenders average your income across two years, while others take the most recent year if it shows growth. Your borrowing capacity is calculated on your net profit after deductions, so the more deductions you claim, the lower your serviceability appears.

Fixed rate loans do not change the amount you can borrow, but they do change the features available once the loan settles. If you plan to use an offset account to manage irregular income, you will need to either leave part of the loan variable or confirm the lender offers offset on fixed splits. Not all do.

Combining Fixed Rates with First Home Buyer Concessions

The Australian Government 5% Deposit Scheme lets eligible first home buyers purchase with a 5% deposit without paying lenders mortgage insurance. In Victoria, the property price cap is $950,000. You can use this scheme with a fixed rate loan, a variable rate loan, or a split. The scheme reduces your upfront cost but does not change the loan features available to you once the loan is approved.

Victorian first home buyers also benefit from a full stamp duty exemption on properties up to $600,000 and a sliding concession up to $750,000. If you are purchasing a new home valued under $750,000, you may also qualify for the $10,000 First Home Owner Grant. These concessions lower the deposit and savings you need to enter the market, which means you can allocate more of your funds toward retaining a buffer once you settle rather than tying every dollar into the purchase.

When to Avoid Fixing Entirely

If your income is highly variable and you rely on the ability to make large lump sum repayments whenever cash flow allows, a fully variable loan with offset may suit you better than any fixed arrangement. Self-employed borrowers in industries with seasonal peaks, such as trades tied to construction cycles or retail-facing businesses, often benefit more from the flexibility of a variable loan than from the certainty of a fixed rate. You can always fix later if rates start rising, but you cannot undo a fixed rate without cost once it is in place.

A fixed rate works when your priority is certainty and when you do not expect to have surplus income large enough to hit repayment caps. It works less effectively when you expect irregular windfalls or when you are likely to sell or refinance within the fixed term.

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