The Pros and Cons of Switching from Fixed to Variable

When your fixed rate period ends, you face a decision that affects every month of repayments ahead.

Most borrowers coming off a fixed rate default to their lender's standard variable rate without reviewing whether that rate, or that lender, still serves them. The transition from fixed to variable is a natural point to assess whether your current loan structure matches where you are now, not where you were when you first locked in that rate.

The question isn't whether variable rates are universally preferable to fixed rates. It's whether the variable rate you're moving to, and the features that come with it, align with how you use your loan and what you need from it over the next few years.

Why Borrowers Consider Refinancing When Fixed Rates End

You're not locked to your current lender once your fixed term expires. The rate your lender offers as you revert to variable is often higher than what they're willing to offer new customers, and other lenders may have structures that reduce your interest costs or give you access to features you didn't have while fixed.

Consider a borrower in Armadale whose three-year fixed period ended last year. The reversion rate was 6.89%, but other lenders were offering established customers variable rates closer to 6.20% with full offset accounts. Over a loan amount of $600,000, that difference amounts to roughly $4,100 per year in interest alone. Refinancing allowed them to access that lower rate and link an offset account that wasn't available under their previous fixed loan structure.

The Advantages of Moving to Variable After Fixed

Variable rates give you flexibility that fixed rates don't. You can make extra repayments without penalty, access redraw or offset facilities, and adjust your repayment frequency to suit changes in income or expenses.

Offset accounts, in particular, become relevant when you're no longer fixed. If you hold savings or receive irregular income, an offset account reduces the interest charged on your loan balance each day. That reduction compounds over time and can be more valuable than chasing a slightly lower rate without offset capability.

Variable loans also allow you to take advantage of rate cuts when they occur. You're not committed to a rate for a set term, so if the market moves in your favour, your repayments adjust accordingly.

The Disadvantages of Switching to Variable

Variable rates move with the market, and that means upward as well as downward. If you've just come off a fixed rate that was lower than current variable offerings, your repayments will increase regardless of which lender you choose.

You lose the certainty that came with a fixed rate. For some households, particularly those with tight cashflow or irregular income, that certainty has value beyond the rate itself. Knowing exactly what your repayment will be each month allows you to plan with confidence, and moving to variable removes that.

Variable rates can also shift multiple times in a year depending on Reserve Bank decisions and lender pricing adjustments. While that volatility works in your favour when rates fall, it requires you to have a buffer in your budget to absorb increases when they happen.

When Refinancing Makes Sense for Armadale Borrowers

Armadale sits within the City of Stonnington, an area with high median property values and a mix of established homes and newer townhouses. Borrowers here often hold larger loan amounts, which means even small differences in interest rates translate to meaningful savings over time.

A home loan health check becomes particularly relevant when your fixed rate ends. It's not just about comparing interest rates, it's about reviewing whether your loan structure still fits your financial position. If your income has increased, you may benefit from offset or redraw features that allow you to reduce interest costs through extra repayments. If you're planning to invest or renovate, accessing equity may be simpler and more affordable through a refinance than through a separate loan product.

The refinance process typically takes three to four weeks once you've submitted a full application, and most lenders will allow you to lock in a rate during that time. If you're within a few months of your fixed rate expiring, starting the conversation early means you can transition without defaulting to your current lender's reversion rate.

What Happens If You Don't Refinance

If you take no action when your fixed period ends, your loan automatically reverts to your lender's standard variable rate. That rate is typically higher than the variable rates available to new customers or those actively refinancing, sometimes by 0.50% to 1.00% or more.

Staying with your existing lender isn't always the wrong choice. If they offer a retention rate that's comparable to what you'd achieve by refinancing elsewhere, and your current loan structure already includes the features you need, the cost and effort of switching may not be justified. But that decision should be informed, not passive.

For borrowers coming off fixed rates in suburbs like Armadale, where loan amounts tend to reflect higher property values near High Street and the Glenferrie Road precinct, even a 0.30% difference in rates can amount to several thousand dollars per year. That's not a trivial sum, and it's worth a conversation.

How to Approach the Transition from Fixed to Variable

Start by requesting a retention offer from your current lender at least 60 days before your fixed period ends. Some lenders will provide a competitive rate to keep you, particularly if you've maintained a strong repayment history and your loan-to-value ratio has improved since you first borrowed.

At the same time, review what other lenders are offering. Rate alone doesn't determine value. Look at offset availability, redraw terms, annual fees, and whether the loan structure allows you to make extra repayments or split your loan between fixed and variable portions if that suits your risk tolerance.

If you're unsure whether your current rate is still appropriate, or whether refinancing would leave you in a stronger position, that's where an experienced broker adds value. We regularly assess loans for borrowers in the City of Stonnington who are coming off fixed terms, and the answer isn't always to switch. Sometimes the retention offer is sound, sometimes it's not. The difference is knowing which is which before you commit.

Call one of our team or book an appointment at a time that works for you. We'll review your current loan, compare what's available across the market, and help you move into a variable rate structure that fits how you use your mortgage and where you're headed over the next few years.

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