Unlock the Secrets to Fixed Rates and Offset Accounts

Fixed Rate Loans Don't Come with Offset Accounts

Most lenders will not attach an offset account to a fixed rate loan. The fixed rate structure locks in your repayment amount for a set term, usually between one and five years, and the lender prices that certainty based on the assumption you will pay a fixed amount of interest each month. An offset account reduces the interest you pay by offsetting your savings balance against the loan, which conflicts with the way a fixed rate is priced and managed by the lender.

Consider a buyer who has saved $70,000 and wants to purchase in Black Rock while keeping $20,000 in an offset account for renovations or emergency costs. If they fix the entire loan, that $20,000 will sit in a separate savings account earning minimal interest rather than reducing the mortgage balance. The buyer ends up paying a fixed rate on the full loan amount while their savings earn far less elsewhere.

Split Loans Let You Use Both Features at Once

A split loan divides your borrowing into two portions. One portion is fixed at a set rate for a chosen term, and the other portion remains on a variable rate with an offset account attached. The variable portion benefits from the offset, so any funds you deposit reduce the interest charged on that part of the loan. The fixed portion gives you repayment certainty and protection if rates rise during the fixed term.

In our experience, buyers in Black Rock who need to budget carefully around private school fees or planned works on older homes value the predictability of a fixed portion while still wanting access to offset features for surplus cash. A typical structure might be 50% fixed and 50% variable, though the ratio can be adjusted to suit your income stability and how much cash you expect to hold in offset.

What Happens During the Fixed Rate Period

Once the fixed rate period ends, the fixed portion automatically reverts to the lender's standard variable rate unless you choose to refix or refinance. The variable portion with the offset account continues unchanged. You are not locked into staying with the same lender after the fixed term expires, but if you want to leave during the fixed period, you will likely face break costs.

Break costs are calculated based on the difference between the fixed rate you are paying and the current wholesale rate the lender can earn if they reinvest the funds. If rates have fallen since you fixed, the lender loses income by letting you out of the contract early, and that loss is passed to you as a break cost. If rates have risen, the break cost may be zero or minimal. Refinancing or selling during a fixed term without understanding this calculation can result in costs of several thousand dollars.

How Much Should You Fix

The right split depends on how much cash you expect to hold over the next few years and how much certainty you need in your repayments. If you are starting with a small buffer and expect to build savings gradually, fixing a smaller portion such as 30% or 40% leaves more of the loan variable so the offset account has a larger balance to work against. If your income is less predictable or you want protection against rate rises, fixing a larger portion such as 60% or 70% gives you more stable repayments even if it reduces the benefit of the offset.

Black Rock buyers purchasing character homes near the village or along the foreshore often plan staged renovations over several years. In a scenario like this, keeping a higher variable portion with offset access means funds set aside for works continue to reduce interest while they wait to be spent. Once the renovation is complete and the offset balance drops, the fixed portion has already provided rate protection during the higher-risk period.

Deposit Requirements and Lenders Mortgage Insurance

If you are buying your first home with a deposit below 20%, you will pay Lenders Mortgage Insurance regardless of whether you choose a fixed rate, variable rate, or split loan. LMI protects the lender if you default, and the premium is calculated based on your deposit size and the loan amount. A 10% deposit will attract a lower LMI premium than a 5% deposit, and the premium is usually added to the loan balance rather than paid upfront.

Under the Australian Government 5% Deposit Scheme, eligible buyers can purchase with a 5% deposit and avoid paying LMI because the government guarantees the difference between your deposit and 20% of the property value. The scheme applies to properties in Melbourne priced up to $950,000, which covers the majority of units and some townhouses in Black Rock, though detached homes near the beach or golf course will generally exceed that cap. You can use a split loan structure while accessing the scheme, and you apply through a participating lender rather than directly to Housing Australia.

Redraw Facilities Are Not the Same as Offset Accounts

Some fixed rate loans allow redraw rather than offset. A redraw facility lets you make extra repayments during the fixed term and withdraw those funds later if needed, but the feature is controlled by the lender and may come with fees, processing times, or withdrawal limits. Offset accounts give you immediate access to your funds without needing lender approval, and the interest saving is calculated daily based on the balance in the account.

Redraw can be restricted or removed by the lender if your circumstances change, and any extra repayments you make become part of the loan structure rather than sitting in a separate account you control. For buyers who want certainty they can access their savings when needed, an offset account on the variable portion of a split loan is more reliable than a redraw facility on a fixed portion.

Applying for a Split Loan as a First Home Buyer

When you apply for a home loan, the lender assesses your income, expenses, existing debts, and credit history to determine how much you can borrow. The loan structure you choose, whether fixed, variable, or split, does not usually change the amount you are approved for, but it does affect how your repayments are calculated and how quickly you can reduce the loan if you make extra payments.

Your broker will ask how much you want to fix and for how long, and the lender will provide rates for both the fixed and variable portions. Those rates depend on the loan size, deposit, and whether you are paying LMI. In Black Rock, where the local market includes a mix of older homes requiring work and newer builds closer to the Balcombe Estuary, buyers often structure their split based on how much renovation funding they expect to hold in offset versus how much rate protection they want on the main loan.

If you are accessing first home buyer stamp duty concessions in Victoria, the same eligibility rules apply regardless of your loan structure. A full stamp duty exemption applies to properties up to $600,000, with a sliding scale concession between $600,000 and $750,000. The concession applies to both new and established homes as long as the property will be your principal place of residence. You do not need to choose a particular loan type to qualify, but your conveyancer or solicitor will need to confirm your eligibility before settlement.

When to Refix or Move to Full Variable

When your fixed rate period ends, you can refix for another term, move the entire loan to variable, or adjust the split. If rates have fallen since you first fixed, moving to variable may reduce your repayments and give you full access to offset and redraw features across the whole loan. If rates have risen or you expect further increases, refixing part or all of the loan locks in a known repayment amount for the next period.

Buyers who have built a strong offset balance during the fixed term sometimes choose to move entirely to variable once the fixed period ends, because the offset saving on the full loan balance outweighs the benefit of fixing again. Others refix a portion if they still want repayment certainty, particularly if they are planning parental leave, a career change, or other income adjustments.

Call one of our team or book an appointment at a time that works for you. We will walk through your savings, income, and plans for the property, then structure a split loan that fits how you actually use your money rather than applying a generic percentage that may not suit your situation.

Frequently Asked Questions