Understanding the Basics of Refinancing to Variable

A fixed rate is only worth keeping if it still suits how your income actually behaves.

If your cashflow moves around with the seasons, a variable interest rate loan can give you room to move that a fixed loan often restricts. The catch is that rates can rise, so the decision should rest on your cashflow, not on a guess about where rates are heading.

Should You Refinance From a Fixed Rate to a Variable Rate?

You should consider it when the flexibility of a variable loan is worth more to you than the certainty of a locked repayment. That usually applies to borrowers whose income is lumpy, who hold cash for tax or wages, or who want to pay extra when a big invoice lands.

The trade-off is that your repayment can change. A fixed loan lets you budget to the dollar for the term. A variable loan can move up or down, so you need enough buffer to cope if repayments rise. Before you switch, run your numbers through a mortgage repayment calculator at a few different rates to see what you could comfortably carry.

Fixed Rate Expiry: What Happens When the Term Ends

When a fixed rate period ends, your loan may move onto your lender's variable rate, and that rate may not be the one a competing lender would offer you. Your lender will normally write to you before this happens, and you can ask what your new rate and repayment will be.

Coming off a fixed rate is a natural time to review the whole loan, not just the rate. You can stay put, fix again, switch to variable with your current lender, or refinance to a different lender. Our fixed rate expiry page explains the options in more detail. Comparing lenders takes some effort, but the rate and fees can affect your repayments for a long time.

Variable Loan Features That Suit Irregular Income

The main features that help self-employed borrowers are an offset account and redraw, and both are more commonly available on variable loans than on fixed ones. An offset account reduces the balance you pay interest on while the money stays accessible. Redraw lets you take back extra repayments you have made, although lenders can set conditions on how and when you access them.

As an example, consider a sole trader with a $600,000 loan who sets aside $60,000 for a tax bill and GST. On a fixed loan with no offset, that cash sits in a bank account earning little. After refinancing to a variable loan with an offset account, the same $60,000 reduces the balance charged interest to $540,000.

Using our illustrative rate of 6.75% p.a., the interest avoided on $60,000 is about $4,050 over a full year, or roughly $337 a month, while the cash stays in the offset. This assumes the loan rate is 6.75% p.a. in both cases. Offset loans can carry a higher rate or an annual package fee, so the saving only holds if the new variable rate and any package or annual fee are no worse than your current fixed loan. Compare the two loans like for like, looking at the rate, the fees and the interest charged on each, before you decide. The borrower still needs to keep the money available for the tax bill, and should confirm the tax side with their accountant. In this scenario the outcome is lower interest charged while the same cash stays accessible, which can help cashflow in quieter months.

Fixed Rate Break Costs: Check Before Leaving Early

If you leave a fixed loan before the term ends, your lender may charge a break cost, and the amount depends on your contract and on market conditions at the time. It can be small or large, so you should get a written figure before you commit to anything.

If your fixed term is close to ending, waiting until expiry may avoid the issue altogether, but check your contract. If you are well short of the end date, ask your lender for a break cost estimate and compare it with what you would save by switching. A refinance only makes sense if the savings and features outweigh that cost plus any discharge or application fees.

How a Refinance Application Works for Self-Employed Borrowers

A refinance application for a self-employed borrower is assessed on your business income, so the lender will want to understand how your earnings look over time. Different lenders treat self-employed income differently, which means the same application can get a different result depending on who reads it.

This is where a broker earns their keep. We match your income and financial history to lenders who assess it fairly, rather than sending you to whichever lender comes to mind first. If your tax returns are not up to date or your income dipped recently, we can talk through how to present that before anything is lodged. Our self employed loans page covers how we approach it, and our refinancing page outlines the process from start to finish.

A loan health check is a sensible first step. It shows where your current rate, fees and features sit, and whether switching from fixed to variable is worth the effort for your situation.

Call one of our team or book an appointment at a time that works for you, and we will review your loan and show you what a switch could mean for your repayments and cashflow.

Frequently Asked Questions