Fixed Rate Loans and What First Home Buyers Should Know

Fixed rate loans give you a set interest rate for a fixed period, usually between one and five years.

That means your repayments stay the same during that time, which makes budgeting a lot less stressful when you're settling into your first home. Most first home buyers in Modbury end up weighing this up against a variable rate, and the conversation usually comes down to certainty now versus flexibility later.

Why First Home Buyers Choose Fixed Rates

A fixed interest rate protects you from rate rises. When you lock in a fixed rate, you know exactly what your repayment will be for the term of the fix, which helps when you're already managing settlement costs, moving expenses, and getting used to owning property.

Consider a buyer who locks in a three-year fixed rate. During those three years, even if the Reserve Bank lifts the cash rate multiple times, their repayment stays the same. That certainty is helpful when you're juggling other costs like strata fees, rates, and getting furniture sorted. The downside is that if rates fall, you won't benefit until your fixed term ends. You also miss out on features like an offset account during the fixed period, which means any savings you're building up won't reduce the interest you're paying on the loan.

Fixed Rate Loans and the 5% Deposit Scheme

Most lenders on the Australian Government 5% Deposit Scheme panel will offer both fixed and variable rate options. The scheme guarantees the difference between your deposit and 20% of the property value, which means you avoid paying lenders mortgage insurance.

You're not locked into a variable rate just because you're using the scheme. In our experience, buyers accessing the scheme who want certainty will often fix for two or three years and then reassess when the fixed term ends. If you're buying in Modbury and your income is stable, a fixed rate under the scheme can give you breathing room while you settle in. Property price caps for Adelaide and regional South Australia increased from 1 October 2025, and Modbury falls within the regional cap, which gives you more flexibility if you're looking at homes closer to the suburb's median.

What Happens When Your Fixed Rate Ends

Your loan doesn't disappear when the fixed term ends. It reverts to a variable rate, usually the lender's standard variable rate, unless you take action before that happens.

Most lenders will contact you a few months before your fixed rate expiry date, and that's when you decide whether to fix again, switch to a variable rate, or refinance to another lender. The rate you revert to is almost always higher than the discounted variable rates on offer at the time, which is why it's worth reviewing your options at least 90 days out. In a scenario where a buyer fixed at 2.5% for three years and is now reverting to 6%, the difference in repayments can be significant. A $400,000 loan at 2.5% costs roughly $1,580 per month, but at 6% it jumps to around $2,400. That's an $820 monthly increase, and if you're not prepared for it, it can hurt.

Split Rate Loans for First Home Buyers

A split rate loan lets you fix part of your loan and leave the rest on a variable rate. It's a middle ground that gives you some certainty and some flexibility.

You might fix 60% of the loan and leave 40% variable, or split it 50-50. The variable portion usually comes with an offset account, so any savings you have in that account reduce the interest you're charged on the variable part of the loan. We regularly see buyers who want to lock in some protection but still want the option to make extra repayments without penalty. A split structure works well if you're expecting a bonus, tax refund, or help from family down the track, because you can put that money into the offset or make lump sum repayments on the variable portion without triggering break costs.

Fixed Rate Break Costs

If you pay out a fixed rate loan early, most lenders will charge a break cost. This happens because the lender priced your loan based on wholesale interest rates at the time you fixed, and if rates have fallen since then, they lose money when you exit early.

Break costs can run into the thousands, especially if you fixed when rates were low and you're breaking the loan when rates are higher. If you think there's any chance you'll sell, refinance, or pay off the loan before the fixed term ends, a shorter fixed period or a split loan structure can reduce that risk. Refinancing during a fixed term is possible, but the break cost often eats into any benefit you'd get from a lower rate elsewhere.

First Home Buyer Grants and Duty Concessions in South Australia

South Australia removed property price caps for the First Home Owner Grant for eligible contracts entered into on or after 6 June 2024. The grant is $15,000 and applies to new homes.

From 1 May 2025, first home buyers purchasing new homes or vacant land to build can access a full transfer duty concession with no price cap on residential land. For established homes, no duty applies up to $700,000, with a concession applying up to $800,000. If you're buying an established home in Modbury, the duty concession is one of the more useful measures available because it directly reduces your upfront cost. Combined with a first home buyer strategy that includes the 5% Deposit Scheme and the First Home Super Saver Scheme, you can get into the market with a smaller deposit and lower settlement costs than you'd need without the concessions.

Using the First Home Super Saver Scheme

The First Home Super Saver Scheme lets you make voluntary super contributions and then withdraw up to $50,000 to use as part of your deposit. Contributions are taxed at 15% instead of your marginal rate, which makes it a tax-effective way to save if you're planning ahead.

You need to apply to the Australian Taxation Office for a determination before you sign a contract. Once approved, the funds are released to you, and you can use them toward your home loan application. If you're a medical professional working at Modbury Hospital or one of the surrounding practices, salary sacrificing into super for a year or two before you buy can give you a deposit boost without taking home pay you're relying on for rent or living costs.

Choosing Between One, Three, or Five Year Fixed Terms

Shorter fixed terms give you less certainty but more flexibility. Longer terms lock you in for longer, which can be helpful if you think rates are going up, but they also carry more risk if your circumstances change.

Most first home buyers we work with in Modbury fix for two or three years. It's long enough to give you some stability while you settle into the property, but not so long that you're locked in if rates fall or you want to make changes to the loan. If you're buying with a partner and one of you is on a contract or planning to take parental leave, a shorter fixed term gives you the option to refinance or restructure without a big break cost when your income changes.

Should You Fix or Stay Variable

There's no universal answer, but the decision usually comes down to whether you value certainty more than flexibility. If your budget is tight and a rate rise would cause problems, fixing makes sense. If you've got a buffer and you want access to an offset account and the ability to make extra repayments, staying variable is often the better call.

In our experience, most first home buyers who fix do it because they want to know exactly what their repayment will be for the next few years. That's fair enough. Just make sure you understand what happens when the fixed term ends, because that's when the loan either starts working for you or becomes something you need to deal with.

Call one of our team or book an appointment at a time that works for you.

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