Most major banks and lenders allow extra repayments on fixed rate loans up to a capped annual amount. The most common caps are $10,000 per year (more restrictive lenders) or $30,000 per year (more flexible lenders). A handful of smaller lenders allow unlimited extra repayments even on fixed loans, though these products are less common.
The annual limit resets each year on the anniversary of your fixed rate start date, not at the calendar year end. Unused allowance from one year generally does not carry over to the next, so strategic lump sum timing matters if you are approaching the cap. Your loan contract or your broker can confirm exactly what your specific lender allows.
Break costs compensate the lender for the financial loss it incurs when you pay down a fixed rate loan faster than agreed. When you fix your rate, the lender has effectively locked in funding at a wholesale rate for the fixed term. If you repay early (beyond the allowed limit), the lender may need to reinvest that money at a lower rate - the break cost recovers that difference.
The formula is approximately: break cost = remaining fixed balance x (fixed rate - current wholesale rate) x remaining term (in years). In practice, lenders use their own internal calculations and the result can vary. When interest rates are higher than your fixed rate (meaning you fixed at a low rate), break costs are typically low or nil - the lender can reinvest at a higher rate. When rates have fallen below your fixed rate, break costs can be substantial.
A split loan is the most practical solution for borrowers who want some rate certainty but also want the ability to make unlimited extra repayments. You fix a portion of your loan - say 60-70% - to lock in a predictable repayment amount, and leave the remaining 30-40% as variable. The variable portion has no extra repayment limit.
For example, on a $600,000 loan you might fix $400,000 and leave $200,000 variable. Your fixed portion gives you budget certainty; any bonus income, inheritance, or savings can go straight into the variable portion without any break cost exposure. When the fixed term ends, you have the flexibility to extend the fix, go fully variable, or adjust the split ratio based on your circumstances at that time.
Even with the extra repayment cap, a fixed rate loan can be the right choice. If your primary goal is budget certainty - knowing exactly what your repayment is for the next 1, 2, or 3 years - and you do not have significant surplus cash flow to put into the loan anyway, the cap is rarely a practical constraint.
The cap only becomes relevant if you receive a windfall (inheritance, bonus, sale of assets) or your income rises significantly during the fixed period. In those cases, a split loan planned in advance is a better structure than a fully fixed loan - but if your cash flow is relatively predictable, a fully fixed loan is often perfectly fine.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. No obligation.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.