Switching From Fixed to Variable: What You Need to Know

Many Frankston homeowners who locked in rates during the pandemic are now watching their fixed rate periods wind down.

The rate you revert to after your fixed period expires can be considerably higher than what's currently available on the market. If you're coming off a fixed rate, this is the moment to review your options rather than automatically rolling onto your lender's standard variable rate.

Why Lenders Don't Reward Loyalty

When your fixed rate period ends, your lender will typically move you to their standard variable rate. That rate is often higher than what they offer to new customers or those actively seeking to refinance their home loan.

Consider a homeowner in the Bayside Council area with a $550,000 loan amount who locked in at 2.3% three years ago. When that fixed rate expires, they might revert to a standard variable rate that's considerably higher than the rates available to someone actively comparing lenders. Over the life of the loan, that difference compounds into tens of thousands of dollars in additional interest.

Lenders budget for customer inertia. They know that most borrowers will accept the reversion rate without question, and they price accordingly.

What Variable Rates Offer That Fixed Rates Don't

Variable rate loans include features that fixed loans typically restrict. You'll usually gain access to an offset account, which lets you park savings against your loan balance and reduce the interest charged each month. You can also make extra repayments without penalty and redraw those funds if needed.

In a scenario where you've built up equity in your Frankston South property and want flexibility around repayments, or you're considering accessing equity for an investment property down the line, these features become particularly relevant. Fixed loans often cap extra repayments at $10,000 to $20,000 per year and don't allow redraws or offsets.

Variable rates also move with the market. If the Reserve Bank lowers the cash rate, your repayments can reduce accordingly without needing to refinance again.

How to Assess Whether Switching Makes Sense for You

Start with the rate comparison, but don't stop there. Look at the features your current loan lacks and calculate what those features are worth to you in dollar terms.

If you typically keep $30,000 in a transaction account earning minimal interest, an offset account linked to your mortgage could save you thousands in interest each year. If you receive irregular income or bonuses and want the ability to pay down your loan faster, unrestricted extra repayments matter more than a rate difference of 0.1%.

The loan health check process involves looking at your current loan structure, your repayment patterns, and what you need from your loan over the next few years. For families in areas like Frankston North or Karingal, where property values have grown steadily and household circumstances shift as children grow, the right loan structure changes over time.

Fixed Rate Break Costs and How They're Calculated

If your fixed rate period hasn't ended yet but you're considering switching early, break costs usually apply. These costs reflect the difference between the rate you're locked into and the rate the lender can now charge when they lend that money to someone else.

Break costs can range from a few hundred dollars to tens of thousands, depending on how much time remains on your fixed term and how much rates have moved since you locked in. Lenders calculate this using the remaining loan balance, the time left on your fixed term, and the current wholesale interest rates.

If rates have risen since you fixed, break costs are often minimal or zero. If rates have fallen, the costs can be substantial. Your lender is required to provide a break cost estimate before you proceed with any fixed rate expiry refinance application.

The Refinance Application Timeline

Most lenders need four to six weeks to process a refinance application from submission to settlement. If your fixed period ends within that window, start the process at least two months before your expiry date.

You'll need to provide proof of income, recent statements showing your current loan repayments, and a property valuation. Lenders typically organise the valuation themselves. If you've improved your property or if Frankston prices have risen since you purchased, a higher valuation can reduce your loan-to-value ratio and improve the rates available to you.

Timing matters because once your fixed term expires, you're no longer locked in. You can refinance without break costs, but if you delay and remain on the standard variable rate for months, you're paying more than necessary during that period.

When Staying Put Makes More Sense

Switching isn't always the right move. If your current lender offers retention rates that are competitive with what's available elsewhere, and your loan already includes the features you need, refinancing creates work without delivering value.

Some lenders will negotiate when they know you're seriously considering a move. In our experience, homeowners who approach their lender with specific comparison rates and a clear understanding of what they want often secure reductions without needing to refinance.

If you're planning to sell within the next 12 months, or if your financial circumstances have changed in ways that might affect your borrowing capacity, staying with your current lender can be the more practical option. Each situation is different, and the decision should reflect your specific goals rather than assumptions about what most borrowers do.

Call one of our team or book an appointment at a time that works for you to review your current loan structure and discuss whether switching to a variable rate aligns with your circumstances.

Frequently Asked Questions