What are Fixed Rate Loans and Extra Repayments?

A fixed rate home loan locks your interest rate for a set period, typically one to five years. Most fixed rate products allow some extra repayments, but with a cap that varies between lenders.

Oncology pharmacists often face shift penalties, overtime, and occasional weekend work that creates irregular income spikes throughout the year. That additional income can go toward your mortgage, but the structure of a fixed rate loan determines whether you can actually put it to work reducing your debt or whether it sits idle until your fixed term ends.

How Much Can You Repay Extra on a Fixed Rate Loan?

Most lenders allow extra repayments of $10,000 to $30,000 per year on a fixed rate loan without penalty. Some products allow more, others allow none. The limit resets each year of your fixed term, so a three-year fixed loan might allow $60,000 in total extra repayments over that period if the annual cap is $20,000. If you exceed the limit, you may be charged an early repayment fee calculated as a percentage of the excess amount or as break costs, depending on the lender and how far rates have moved since you fixed.

Consider a scenario where you borrow $550,000 on a fixed rate and receive a $15,000 performance bonus in your first year. If your loan allows $20,000 in extra repayments annually, the full bonus goes toward reducing your principal. If your loan allows no extra repayments, you would need to place that bonus in an offset account linked to a variable rate portion of your loan, or into savings where it earns taxable interest at a lower rate than you are paying on the mortgage.

Why Lenders Restrict Extra Repayments on Fixed Loans

Lenders fund fixed rate loans by locking in their own cost of funds for the same period. When you pay off part of the loan early, the lender cannot easily redeploy that capital at the same return. The cap on extra repayments limits their exposure to this funding mismatch. If you want full flexibility to make unlimited extra repayments, a variable rate loan is the appropriate product.

What Happens to Extra Repayments When Your Fixed Term Ends?

Any extra repayments you make during the fixed term reduce your principal permanently. When your fixed term expires and the loan reverts to a variable rate, your minimum repayment recalculates based on the lower outstanding balance. You continue to benefit from the reduced principal for the life of the loan. If you refinance or switch products at the end of the fixed term, those extra repayments have already reduced the amount you owe, which can improve your borrowing position or reduce the interest charged going forward.

Split Rate Loans as an Alternative

A split loan divides your borrowing between a fixed portion and a variable portion. You might fix 60% of your loan to lock in repayments on the majority of your debt, and leave 40% on a variable rate with an offset account attached. Extra repayments and irregular income go into the offset, reducing interest on the variable portion, while the fixed portion provides certainty on your core repayment obligation.

In our experience, oncology pharmacists with variable income from locum work or additional shifts often prefer this structure. It allows you to manage cash flow without triggering break costs or hitting repayment caps, while still protecting a portion of your loan from rate rises. The variable portion also gives you access to features like offset accounts and redraw facilities, which are rarely available on fully fixed loans.

Redraw Facilities on Fixed Rate Loans

Some fixed rate loans offer a redraw facility that lets you access extra repayments you have already made, subject to the same annual cap. If you repay an extra $15,000 in one year and then need $8,000 for an unexpected expense, you can redraw that amount without breaking your fixed rate. Not all lenders offer redraw on fixed loans, and those that do may charge a fee per withdrawal or limit the number of redraws per year. Check the product disclosure before assuming redraw is available.

Should You Fix Your Rate if You Plan to Make Extra Repayments?

If you expect to repay more than $20,000 to $30,000 per year above your minimum repayment, fixing your entire loan will likely cost you in lost flexibility or early repayment fees. A variable rate or split structure is usually more appropriate. If your extra repayments are likely to stay within the annual cap, a fixed rate can still work, particularly if you value the certainty of knowing exactly what your repayments will be during a period of potential rate movement.

Oncology roles in hospital settings often come with salary packaging options, novated leases, or other arrangements that affect your disposable income. If those arrangements are likely to change during your fixed period, such as a novated lease ending or a shift from full-time to part-time hours, a variable rate gives you more room to adjust your repayment strategy without penalty.

Break Costs and How They Are Calculated

If you repay your fixed rate loan in full before the fixed term ends, such as when selling your property or refinancing, you may be charged break costs. These are calculated based on the difference between the rate you fixed at and the rate the lender can now lend that money at for the remaining fixed period. If rates have fallen since you fixed, break costs can be substantial. If rates have risen, break costs are usually zero.

Break costs are separate from early repayment fees for exceeding the annual cap. They apply when you discharge the loan entirely, not when you make extra repayments within or slightly above the allowed limit. Some lenders waive break costs if you are refinancing to another product with the same lender, but this is not universal. If you are considering a refinance before your fixed term expires, ask your broker to request a break cost estimate from your current lender before proceeding.

Offset Accounts and Fixed Rate Loans

Most fixed rate loans do not offer offset accounts. The structure of a fixed loan makes it difficult for lenders to provide offset functionality without undermining the fixed rate itself. If you want an offset account, you will need a variable rate loan or the variable portion of a split loan. An offset account linked to a variable rate portion performs the same function as extra repayments by reducing the interest charged, but without locking your funds into the loan. You retain access to the full offset balance at any time, which can be useful if you are managing irregular income or building a buffer for parental leave or study periods.

Call one of our team or book an appointment at a time that works for you. We can structure a fixed or split loan that fits your repayment capacity and gives you the flexibility you need without paying for features you won't use.

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