The Easiest Way to Switch from Fixed to Variable

Why Refinance from Fixed to Variable

Refinancing from fixed to variable gives you access to features like offset accounts and redraw facilities while allowing you to take advantage of rate movements. Many borrowers in Bentleigh locked into fixed rates during the recent rate cycle are now paying significantly more than current variable offerings, particularly if their fixed term was set at the peak.

Consider a borrower who fixed at 5.8% two years ago. With variable rates now sitting lower for many lenders, the difference in monthly repayments can be substantial. On a loan amount of $600,000, even a 0.5% reduction translates to roughly $180 per month in savings. Beyond the rate itself, switching to variable unlocks offset accounts that can reduce interest on your outstanding balance in real time, something fixed loans typically don't offer.

The timing matters. If your fixed rate period is ending, you won't face break costs, which makes the refinance process more straightforward. If you're still within your fixed term, you'll need to weigh the cost of exiting early against the potential savings and feature improvements.

What Happens When Your Fixed Rate Ends

When your fixed rate term expires, your loan automatically reverts to your lender's standard variable rate. This reversion rate is almost always higher than the discounted variable rates offered to new customers, sometimes by 0.5% to 1% or more.

Most lenders will notify you 30 to 90 days before your fixed term ends, but they're under no obligation to offer you their most competitive rate. The onus is on you to review your options. In our experience, borrowers who don't act before the fixed term expires can remain on an inflated reversion rate for months or even years without realising how much they're overpaying.

A loan health check before your fixed term ends allows you to compare what your current lender is offering against the broader market. If you're already past the fixed expiry date, the urgency increases because every month on the reversion rate is costing you unnecessarily.

Fixed Rate Break Costs and How They're Calculated

If you're still within your fixed rate period, your lender will charge a break cost to exit early. The break cost compensates the lender for the difference between your fixed rate and the current wholesale funding rate for the remaining term.

Break costs are highest when market rates have fallen since you fixed, which is the situation many Bentleigh borrowers are now facing. The calculation is opaque and varies between lenders, but you can request an estimate by contacting your current lender directly. In some cases, the break cost can run into tens of thousands of dollars, which makes refinancing unviable. In others, particularly if your fixed term is close to expiry or rates haven't moved dramatically, the cost may be manageable or even negligible.

Before assuming you're locked in, get the exact figure. We regularly see borrowers avoid refinancing because they assume the break cost is prohibitive, only to find it's a few thousand dollars and the long term savings justify the switch.

Offset Accounts and Cash Flow Flexibility

Variable rate loans typically come with offset account functionality, which links a transaction account to your mortgage. Every dollar in the offset account reduces the balance on which interest is calculated.

For Bentleigh households with irregular income or those managing rental properties, an offset account can be far more valuable than a marginal rate difference. As an example, a borrower with $50,000 sitting in an offset account on a $500,000 loan effectively only pays interest on $450,000. At current variable rates, that's roughly $200 per month in interest saved without making any additional repayments.

Fixed rate loans rarely offer offset functionality, which means any savings you hold in a standard transaction or savings account earn minimal interest while your mortgage continues to accrue interest on the full loan amount. Switching to variable restores that flexibility and can improve your cash flow without requiring you to commit additional funds to the mortgage itself.

The Refinance Application Process

Refinancing to switch from fixed to variable follows the same application process as any other mortgage refinance. You'll need to provide income documentation, a current property valuation, and details of your existing liabilities.

Lenders will reassess your borrowing capacity based on your current financial position, which means changes in income, expenses, or credit commitments since your original loan was approved can affect your eligibility. Most lenders will also apply a serviceability buffer to ensure you can still afford repayments if rates rise.

The property valuation is typically conducted as a desktop assessment, though some lenders may require a physical inspection depending on the loan amount and property type. Bentleigh's relatively stable property market generally supports valuations that align with recent sales data, though older homes or properties on larger blocks can sometimes come in lower than expected if comparable sales are limited.

Settlement usually takes four to six weeks from application, though it can be faster if your documentation is straightforward and the valuation is completed promptly. During this period, your new lender will organise the discharge of your existing loan and register the new mortgage.

Consolidating Debt When You Refinance

Refinancing also gives you the option to consolidate other debts into your mortgage, which can reduce your overall interest costs and simplify repayments. Personal loans, car loans, and credit card balances often carry interest rates well above mortgage rates, sometimes two or three times higher.

If you have sufficient equity in your property, rolling these debts into your home loan can reduce your monthly commitments and improve your cash flow. The trade off is that you're extending the repayment term on those debts to match your mortgage term, which means you may pay more interest over time even though the rate is lower.

This approach works particularly well for Bentleigh borrowers with investment properties who want to clear short term debt and restore their borrowing capacity for future purchases. We regularly see this in scenarios where a borrower has accumulated $30,000 to $50,000 in car loans or personal debt and wants to access equity for their next investment without the serviceability drag of those commitments.

When Refinancing Doesn't Make Sense

Refinancing isn't always the right move, even if variable rates are lower than your current fixed rate. If your fixed term has less than six months remaining and the break cost is significant, it may be worth waiting until the term expires and refinancing without penalty.

Similarly, if your loan amount is small or your remaining loan term is short, the upfront costs of refinancing, including application fees, valuation fees, and potential discharge fees, may outweigh the savings. Lenders typically charge between $300 and $600 in application fees, and discharge fees from your current lender can add another $150 to $400.

If your property has declined in value or your income has dropped since your original loan was approved, you may not have enough equity or serviceability to refinance at all. In these cases, negotiating with your current lender for a rate reduction or switching to a different product within their range may be a more practical option than moving to a new lender.

Call one of our team or book an appointment at a time that works for you. We'll assess your current loan structure, calculate any break costs, and identify whether switching to variable will deliver the rate reduction and feature improvements you're looking for. You can book an appointment directly or reach out for an initial discussion about your refinancing options.

Frequently Asked Questions