Understanding Your Options When Your Fixed Rate Period is Ending
If your fixed rate period is ending, you're probably wondering what happens next. Many Australian homeowners find themselves in this position, and it's a crucial time to review your options. When coming off a fixed rate, your home loan will typically revert to your lender's standard variable interest rate - and this might not be the most suitable option for your financial situation.
The fixed rate expiry period is the perfect opportunity to conduct a home loan health check and explore whether refinancing to a variable rate could work in your favour. Let's explore why you might consider making this switch and how the refinance process works.
Why Refinance from Fixed to Variable?
There are several compelling reasons why Australian homeowners choose to switch to variable rates when their fixed term expires:
Flexibility and Features
Variable interest rate loans often come with features that fixed loans don't offer. You might gain access to an offset account, which can help reduce loan costs by offsetting your savings against your loan amount. Many variable loans also include redraw facilities, allowing you to access extra repayments you've made when you need them.
Avoiding High Reversion Rates
When your fixed rate period ends, you could find yourself stuck on a high rate - your lender's standard variable rate. This rate is typically higher than what new customers receive or what's available from other lenders. By choosing to refinance mortgage options actively, you could potentially access a better interest rate than simply accepting what your current lender offers.
Access to Equity
If you need to access equity in your property - perhaps to release equity to buy the next property or for renovations - a variable rate loan through refinancing might provide more flexibility. This equity release can be challenging with fixed rate loans, which often have restrictions on additional borrowing during the fixed period.
No Break Costs
One significant advantage of refinancing when your fixed rate period ends is that you won't face break costs. These fees can be substantial if you refinance during a fixed term, but they don't apply once your fixed period expires.
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When to Refinance: Timing Your Switch
The ideal time to start your refinance application is typically 3-6 months before your fixed rate period ending. This gives you enough time to:
- Compare refinance rates across different lenders
- Understand current refinance rates in the market
- Complete the refinance process without rushing
- Secure a new loan before reverting to a higher standard variable rate
Starting early means you won't be paying too much interest while waiting for approval, and you'll have time to make an informed decision rather than accepting whatever your current lender offers.
The Refinance Process: What to Expect
Refinancing your home loan doesn't need to be overwhelming. Here's what the mortgage refinancing journey typically involves:
Loan Review and Comparison
First, you'll want to conduct a thorough loan review. This involves looking at your current loan amount, how much you're paying in interest, and what features you're missing. Then, compare refinance rates and features from various lenders to find options that suit your needs.
Property Valuation
Lenders will need to assess your property's current value. This helps determine how much equity you have and whether you might be able to unlock equity for other purposes, like investment or renovations.
Application and Documentation
You'll need to provide documentation similar to when you first bought your home - proof of income, expenses, assets, and liabilities. A mortgage broker can help streamline this process and ensure you have everything ready.
Settlement
Once approved, your new lender will pay out your existing loan, and you'll start making repayments under your new variable rate loan terms.
Potential Savings: What's at Stake?
Many Australians can save thousands by refinancing rather than accepting their lender's standard variable rate. Even a difference of 0.5% on a $500,000 loan could mean saving several thousand dollars per year in interest payments.
Consider this: if you're coming off a fixed rate of 2.5% and your lender's standard variable rate is 6.5%, but you could refinance to a competitive variable rate of 5.8%, that 0.7% difference could save you approximately $3,500 annually on a $500,000 loan. Over the life of your loan, this adds up to substantial savings.
Additional Benefits to Consider
Beyond potentially accessing a lower interest rate, switching to variable through refinancing might allow you to:
- Consolidate other debts into your mortgage, which could improve cashflow by reducing multiple repayments to one
- Access a redraw facility to help manage unexpected expenses
- Set up an offset account to reduce the interest you pay
- Make unlimited extra repayments without penalties
- Access features like split loans, combining fixed and variable portions
Is Switching to Variable Right for You?
While there are many potential advantages to refinancing from fixed to variable, it's not the right choice for everyone. Variable rates can fluctuate, meaning your repayments could increase if rates rise. Some borrowers prefer the certainty of knowing exactly what they'll pay each month.
However, if you value flexibility, want access to features like offset accounts and redraw facilities, or believe you can save money refinancing compared to your current lender's standard rate, then switching to variable could be worth exploring.
A comprehensive home loan health check can help you understand whether this move aligns with your financial goals. This review looks at your entire financial situation, not just interest rates, to determine what's right for you.
Getting Started with Your Refinance
If your fixed rate period is ending soon, now's the time to explore your options. The refinance process typically takes 4-6 weeks from application to settlement, so starting early gives you the advantage of choice rather than urgency.
Working with an experienced mortgage broker can help you compare refinance rates, understand the features available, and find a loan that suits your circumstances. Whether you're in Prestons or anywhere across Australia, professional guidance can make the refinancing journey smoother and help ensure you're making an informed decision.
Don't let your loan automatically revert to a potentially higher standard variable rate. Take control of your home loan and explore whether switching to variable through refinancing could improve your financial position.
Ready to explore your refinancing options? Call one of our team or book an appointment at a time that works for you. At Credible Finance, we'll help you understand your options and find a solution that aligns with your goals. You can also start with a loan health check to see where you stand and what opportunities might be available to you.