How to switch from fixed to variable rate

Your fixed rate period is ending and you're facing a decision. Most lenders will automatically roll you onto their standard variable rate, which is rarely the most competitive option available. Before that happens, it's worth comparing what's on offer across the market and whether refinancing to a different variable rate could save you money each month.

Why refinancing from fixed to variable might make sense now

Many borrowers locked in fixed rates when they were sitting below 2%. Those periods are expiring now, and the standard variable rates offered by the same lenders can be significantly higher than what new customers are accessing elsewhere. Refinancing to a different lender's variable rate can reduce your monthly repayments without the commitment of another fixed term.

Variable rates also come with features that fixed loans typically don't. Offset accounts, unlimited extra repayments, and redraw facilities give you control over how quickly you pay down your loan and how much interest you actually pay over time. If your financial position has changed since you first took out your mortgage, those features might be more useful now than rate certainty.

When staying variable suits Paddington borrowers

Paddington properties have seen consistent demand, and many owners in the area use their homes as a base to build wealth through property investment or renovations. A variable rate loan gives you the flexibility to access equity without breaking a fixed term or paying discharge fees. If you're planning to buy an investment property, renovate, or even sell within the next few years, a variable loan won't lock you in.

Consider a borrower who bought a two-bedroom terrace in Paddington and has paid down their loan over the last few years. They're coming off a fixed rate and want to keep the option open to access equity for an investment property. Switching to a variable rate loan with an offset account means they can park savings in the offset to reduce interest while keeping that cash accessible. When the opportunity to invest comes up, the equity is there and the loan structure supports it.

What the refinance process looks like

Refinancing from fixed to variable involves a full loan application with a new lender. They'll assess your income, expenses, and the current value of your property to determine how much they're willing to lend. If your property has increased in value since you bought it, that can work in your favour, especially if you want to borrow more or avoid lender's mortgage insurance.

The lender will order a property valuation, which in Paddington usually reflects the area's strong demand and limited supply of period homes close to the city. You'll need to provide recent payslips, tax returns if you're self-employed, and a few months of bank statements. The process typically takes three to four weeks from application to settlement.

You'll also need to consider discharge fees from your current lender, which are usually a few hundred dollars, and any application fees charged by the new lender. Some lenders offer cashback incentives or waive application fees to attract refinancing customers, so it's worth comparing what's available. A loan health check can show you where the savings are and whether the upfront costs are justified by the monthly reduction in repayments.

Fixed rate break costs and timing your switch

If your fixed rate period has already ended, there are no break costs to worry about. You're free to refinance without penalty. If you're still within your fixed term but considering an early exit, break costs can be substantial. These are calculated based on the difference between your fixed rate and current wholesale rates, and they're designed to compensate the lender for the interest they'll lose.

Break costs aren't always disclosed upfront, so you'll need to request a payout figure from your lender. In some cases, the cost of breaking a fixed loan early outweighs the savings you'd make by refinancing. In others, especially where rates have moved significantly, the break cost is minimal or even zero. Timing matters, and if your fixed term is ending within a few months, it's usually more practical to wait and refinance without penalty.

How offset accounts and redraw change your repayment strategy

An offset account works like a transaction account linked to your home loan. The balance in the offset reduces the amount of interest you're charged each month. If you have a $600,000 loan and $30,000 sitting in your offset, you only pay interest on $570,000. The money in the offset is still yours to access anytime, which makes it a flexible way to reduce interest without making extra repayments you can't get back.

Redraw facilities let you make extra repayments and withdraw them later if needed. The difference is that redraw is controlled by the lender, and some lenders limit how often you can redraw or charge fees for each withdrawal. Offset accounts give you more control, which is why many borrowers prioritise them when refinancing to a variable rate. If you're self-employed or your income fluctuates, an offset account lets you manage cashflow without losing the benefit of paying down your loan faster.

What happens if you do nothing

If you don't refinance or negotiate with your current lender, you'll roll onto their standard variable rate. That rate is typically higher than what they offer new customers, and it rarely includes the features or discounts available through a refinance application. Some lenders will offer you a retention rate if you call and ask, but it's not always as competitive as what's available if you move to a different lender.

In our experience, borrowers who don't review their loan when their fixed term ends can pay thousands more in interest over the following years simply because they stayed with the default option. It's not that their lender is deliberately overcharging them, it's just that loyalty doesn't tend to be rewarded in home lending. The lowest rates and most competitive features are almost always reserved for new customers.

What you'll need to move forward

Once you've decided to refinance, the process starts with comparing what's available across different lenders. Rates vary depending on your loan amount, deposit size, and whether you're taking out an owner-occupied or investment loan. Some lenders also offer discounts if you have other products with them, like a transaction account or credit card, but those aren't always worth it once you factor in the ongoing fees.

You'll also want to check what features are included with each loan. Some variable rate loans come with an offset account at no extra cost, while others charge an annual fee. Some offer unlimited extra repayments and free redraws, while others cap how much you can repay each year without penalty. Those details matter if you're planning to pay off your loan faster or access equity down the line.

Call one of our team or book an appointment at a time that works for you. We'll walk you through what's available, what the numbers look like for your situation, and whether refinancing makes sense before your fixed term ends.

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