Understanding the Switch from Variable to Fixed Rate

If you're on a variable rate and watching rate movements closely, switching to a fixed rate through refinancing can lock in certainty for your repayments.

The question is whether that certainty is worth the cost of refinancing, and whether fixed rates available now suit the way you use your loan. For Camberwell residents, where property values and household incomes tend to support larger loan amounts, the impact of even small rate differences compounds quickly.

Why Refinance from Variable to Fixed

Refinancing to switch from variable to fixed gives you a set interest rate for a defined period, typically between one and five years. During that time, your repayments won't change regardless of what happens with the Reserve Bank cash rate. You also gain clarity on your household budget, which matters if you're managing school fees, renovations, or investment property commitments alongside your mortgage.

Variable rates offer flexibility with features like offset accounts and unlimited extra repayments. Fixed rates typically limit or remove those features. Before switching, consider how often you make extra repayments and whether you rely on an offset account to reduce interest. If you rarely use those features, the trade-off may be minimal. If you regularly deposit surplus income into an offset or make lump sum payments, a fixed rate could constrain your repayment strategy. Some lenders allow limited extra repayments on fixed loans, usually capped at $10,000 to $20,000 per year without penalty.

When the Switch Makes Sense

The decision to refinance to a fixed rate depends on where rates are now, where you think they're going, and how long you plan to hold the loan. If variable rates have been rising and fixed rates remain lower than your current variable rate, locking in can reduce your repayments immediately. If fixed rates are higher than your variable rate, you're paying a premium for certainty.

Consider a Camberwell borrower with a $750,000 loan on a variable rate who refinances to a fixed rate that's 0.30% lower. The immediate saving on monthly repayments is around $140, or roughly $1,680 over the first year. Over a three-year fixed period, that's over $5,000 in reduced interest, assuming rates don't shift significantly. If variable rates rise during that period, the saving increases. If they fall, you've locked yourself into a higher rate than you could have accessed by staying variable.

Refinancing Costs and Break Costs

Refinancing from variable to fixed typically involves application fees, valuation fees, and settlement costs. These can range from $1,000 to $3,000 depending on the lender and whether you're moving to a new lender or switching products with your existing lender. Most lenders waive application fees as part of refinancing campaigns, but you'll still pay for the valuation and any legal or discharge fees from your current lender.

If you're currently on a fixed rate and want to switch to a different fixed rate, break costs may apply. These are calculated based on the difference between your current rate and the rate the lender can now lend at for the remaining fixed period. Break costs are typically a concern when switching from fixed to variable, but they can also apply when moving from one fixed rate to another before the term ends. Refinancing from variable to fixed avoids break costs entirely because variable loans don't have them. You can find more detail on how break costs are calculated on our fixed rate expiry page.

Fixed Rate Limits on Loan Features

Most fixed rate home loans restrict access to offset accounts and limit extra repayments. If your household income fluctuates or you expect a bonus, inheritance, or sale proceeds in the near future, a fixed rate may not suit your situation. Offset accounts are common on variable loans in Camberwell, where dual incomes and investment property portfolios often mean larger cash reserves sitting alongside the mortgage.

Some lenders offer partial offset functionality on fixed loans, where only a percentage of your offset balance reduces the interest charged. Others allow a small amount of extra repayments each year without penalty, typically $10,000 to $30,000 depending on the loan size. If you want to keep some flexibility, consider splitting your loan so part remains variable with full offset access while the other portion is fixed. This structure lets you lock in a portion of your repayments while maintaining the ability to make extra payments and use an offset account on the variable portion.

Split Loan Structures

A split loan divides your total loan amount into two portions: one variable, one fixed. You choose the split ratio based on how much certainty you want versus how much flexibility you need. A common approach is a 50/50 split, but you can adjust that to 60/40, 70/30, or any other combination.

In our experience, borrowers in Camberwell with larger loans and higher cash reserves often prefer a 60% fixed, 40% variable split. The fixed portion gives budget certainty for the majority of the loan, while the variable portion keeps an offset account active and allows unlimited extra repayments. This structure works particularly well if you're using an offset account to manage cash from rental income, business earnings, or periodic bonuses.

Refinancing to a split structure costs the same as refinancing to a fully fixed or fully variable loan. You'll go through one refinance application process, and both portions of the loan settle at the same time. The lender treats the split as two separate loan accounts, each with its own interest rate and terms. You'll receive two loan statements, but the repayment usually comes out as a single combined amount.

How Long to Fix For

Fixed rate terms range from one to five years, with most borrowers choosing between one and three years. Shorter fixed terms offer lower rates but require you to make another decision sooner. Longer terms provide extended certainty but typically come with higher rates.

If you expect rates to stabilise or fall over the next few years, a shorter fixed term lets you reassess sooner without being locked in. If you want certainty and are willing to accept the rate in exchange for that stability, a longer term makes sense. Camberwell's proximity to private schools, established childcare, and the Rivoli Cinemas means many households here have predictable, ongoing expenses that suit longer fixed periods.

Refinancing Process and Timing

The refinance process takes between three and six weeks from application to settlement. You'll need to provide income documentation, recent loan statements, and identification. The lender will conduct a property valuation, assess your borrowing capacity, and issue a formal approval before settlement.

If you're refinancing to lock in a fixed rate before an expected rate rise, timing matters. Fixed rates can change daily, and the rate you're quoted is typically only held for 30 days from application. If settlement takes longer than that, you may need to re-lock at the current rate. Most lenders let you lock in your fixed rate once the loan is formally approved, so the rate you accept is the rate you'll receive at settlement.

You can continue making repayments on your existing variable loan right up until settlement. Once the refinance settles, the new lender pays out your old loan, and your repayments switch to the new fixed rate loan. There's no gap in repayments, and you won't need to make a double payment during the transition.

Accessing Equity When Refinancing

If your property has increased in value since you purchased, refinancing gives you an opportunity to access equity. This is common in Camberwell, where median property values have risen steadily, particularly for period homes near Burke Road and Camberwell Junction. Equity release can fund renovations, investment property deposits, or debt consolidation.

Lenders typically allow you to borrow up to 80% of your property's current value without requiring lender's mortgage insurance. If your loan balance has reduced and your property value has increased, the gap between your current loan and that 80% threshold is accessible equity. You can draw on that equity as part of the refinance and still switch to a fixed rate on the new, higher loan amount.

A loan health check can help you understand how much equity you have and whether accessing it now fits with your broader financial goals. Accessing equity increases your loan amount and your repayments, so it's worth modelling the new repayment amount before proceeding.

Staying with Your Lender or Switching

You can refinance to a fixed rate with your current lender or move to a new lender. Staying with your existing lender is sometimes faster and involves fewer costs, but it may not deliver the lowest rate. Lenders often reserve their most competitive fixed rates for new customers, meaning you may access a lower rate by switching.

Switching lenders involves discharge fees from your current lender, typically $300 to $500, plus any government fees for registering the new mortgage. Your new lender may cover some or all of these costs as part of a refinance offer, but it's worth confirming upfront. If your current lender offers a competitive fixed rate and waives application fees, the cost difference between staying and switching may be minimal.

Call one of our team or book an appointment at a time that works for you. We'll compare fixed rates across lenders, model the cost of refinancing, and help you decide whether switching to a fixed rate fits your situation.

Frequently Asked Questions