When to Fix Your Rate and Use an Offset Account

A fixed rate gives you certainty, and an offset account gives you flexibility. Many first home buyers consider a loan that uses both, depending on their savings, budget and the fees involved.

This article is for Burwood buyers who are weighing a fixed rate against an offset account before they apply. Burwood is home to Deakin University's main Melbourne campus.

How Does a Fixed Interest Rate Work for a First Home Buyer?

A fixed interest rate locks your rate for an agreed period, so your repayment stays the same until the fixed term ends. After that, the loan usually moves to a variable rate unless you fix again.

The benefit is predictability. If your household budget is tight in the first few years, knowing the exact repayment helps you plan. The trade-off is flexibility. Many fixed products cap extra repayments, and leaving the fixed term early can trigger break costs. If rates fall during the term, you will not benefit unless you pay to exit.

The fixed rate expiry calculator helps you plan for the day the fixed term ends and your repayment changes.

What Is an Offset Account and How Does It Save Interest?

An offset account is a transaction account linked to your home loan. The balance in it is subtracted from your loan balance when interest is calculated, so you pay interest on a smaller amount.

As an example, take a $600,000 loan over 30 years at an illustrative 6.75% p.a. The repayment is about $3,892 a month. If you keep $30,000 in the offset account, interest is charged on $570,000 instead. At the same illustrative rate, that is roughly $2,025 less interest over a year, while your cash stays available to spend.

The trade-off is cost. Loans with an offset account can carry a package fee or a higher rate, depending on the lender. The saving only outweighs that cost if you hold a meaningful balance in the account for most of the year.

Can You Have a Fixed Rate and an Offset Account Together?

Some lenders attach a full offset account to fixed loans, but many do not, so it depends on the lender and the product. A common solution is a split loan, with part fixed and part variable.

The variable portion usually carries the offset account and any redraw access. The fixed portion gives certainty. Redraw is different from offset. It lets you withdraw extra repayments you have already made, whereas offset keeps your savings in a separate account.

When a Split Loan Suits a Burwood First Home Buyer

A split loan suits buyers who want repayment certainty on part of the loan and flexibility on the rest. It works well when you expect to hold savings in the offset account for a long time.

Consider a Burwood couple borrowing $600,000. They worry about a repayment rise after settlement, but they also want to keep their emergency savings accessible. Their broker splits the loan into $300,000 fixed and $300,000 variable with an offset account. They keep $30,000 of savings in the offset account.

At an illustrative 6.75% p.a. on both portions, interest on the variable half is calculated on $270,000 instead of $300,000. That is about $2,025 less interest a year, and the $30,000 stays available for emergencies. Half of their repayment stays locked in. The outcome is a repayment they can plan around and savings that still work for them.

The trade-off is that the fixed half comes with limits on extra repayments and possible break costs. If the couple sold or refinanced during the fixed term, they would need to account for those costs. The offset benefit also shrinks if they spend down the $30,000.

Our first home buyer loans page explains the loan structures available, and our Burwood mortgage broker team can show you how each one fits your situation.

How Stamp Duty Concessions Affect Your Deposit and Savings

In Victoria, a first home buyer pays no land transfer duty on a dutiable value up to $600,000, with a reduced amount from $600,001 to $750,000. Standard rates apply above $750,000.

Eligibility has conditions. At least one buyer must live in the home for 12 continuous months, starting within 12 months of settlement. Buyers must be individuals aged 18 or over and enrolled to vote in Victoria. Neither the buyer nor their partner can have owned a home in Australia or received a first home buyer benefit before. A saving on duty can leave more of your savings available to hold in an offset account, but your own circumstances decide what applies.

If your deposit is small, you may also need to consider Lenders Mortgage Insurance. Our pages on low deposit loans and low LMI loans cover how this cost works and how to reduce it.

What to Check Before You Choose a Fixed Term or an Offset

Before you choose, check how much extra you can repay each year on the fixed portion and how break costs are calculated. Also check what fee the offset account carries and how much you will realistically keep in it.

Then test the repayment at a rate above your starting rate, so you know your budget can cope if the loan moves to variable. The loan repayment calculator lets you compare these scenarios in a few minutes, and our borrowing capacity page shows what you may be able to borrow.

If you are buying your first home in Burwood, call one of our team or book an appointment at a time that works for you. We will compare fixed, variable and split structures against your budget and your plans for the home.

Frequently Asked Questions