Smart ways to switch from variable to fixed rate mortgages

Rising interest rates have many Australian homeowners reconsidering their mortgage strategy. If you're currently on a variable interest rate, you might be wondering whether it's time to lock in a fixed rate through refinancing. This decision can significantly impact your household budget and financial stability.

Understanding Variable vs Fixed Rate Mortgages

Variable interest rates fluctuate with market conditions and Reserve Bank decisions. While this means you benefit when rates drop, you're also exposed to increases that can strain your cashflow. Fixed interest rates, conversely, provide certainty by locking in your rate for a specific fixed rate period, typically one to five years.

When you refinance to switch from variable to fixed, you're essentially taking out a new home loan with different terms. This process involves a refinance application with either your current lender or a new one.

When to Consider Switching to Fixed Rate

Several scenarios make refinancing from variable to fixed particularly attractive:

1. Interest rate predictions: If rates are expected to rise further, locking in current rates could save thousands over the fixed rate period
2. Budget certainty: Fixed payments make household budgeting more predictable
3. Risk tolerance: If rate fluctuations cause financial stress, fixed rates provide peace of mind
4. Current market conditions: When fixed rates are lower than variable rates or close to them

The Refinance Process Explained

The refinance process for switching to fixed rate involves several key steps:

Property valuation: Your lender will assess your property's current value to determine your loan-to-value ratio. This affects both approval and interest rates available to you.

Financial assessment: Lenders review your income, expenses, and credit history. Your borrowing capacity determines the loan amount you can access.

Loan review: Compare refinance rates across different lenders. Current refinance rates vary significantly, and even small differences can save money refinancing over time.

Documentation: Prepare payslips, tax returns, bank statements, and property documents for your refinance application.

Features to Consider When Refinancing

When you refinance your home loan, consider these valuable features:

• Offset account: A refinance offset account can reduce the interest you pay on your home loan by offsetting your loan balance with savings
• Redraw facility: Refinance redraw options allow you to access extra repayments you've made
• Split loans: Combine fixed and variable portions to balance security with flexibility
• Additional repayment options: Some fixed rate loans allow extra payments without penalties

Maximising Your Refinance Benefits

A home loan health check can identify opportunities beyond just switching rate types. You might discover you can:

• Access equity for investment in additional property purchases
• Release equity to buy the next property or fund renovations
• Consolidate into mortgage other high-interest debts
• Reduce loan costs through lower fees or charges
• Improve cashflow through restructured repayments

For Canberra and Wanniassa residents, property values have generally remained strong, potentially allowing you to unlock equity that wasn't previously available.

Timing Your Fixed Rate Switch

The question of when to refinance depends on your personal circumstances and market conditions. Consider refinancing when:

• Your current variable rate exceeds available fixed rates
• You're paying too much interest compared to current market rates
• Your financial situation has improved since your last loan application
• You want to consolidate debt or access equity

Working with Mortgage Professionals

Refinancing involves complex calculations and numerous lender options. A professional mortgage broker in Wanniassa can help you compare refinance rates, assess features, and manage the application process. They understand local market conditions and can identify lenders most likely to approve your refinancing application.

The mortgage refinancing process typically takes 4-6 weeks from application to settlement. During this time, your broker handles communications with lenders, organises valuations, and ensures all documentation meets requirements.

Switching from variable to fixed rate through refinancing can provide financial security and potentially reduce your interest costs. However, every situation is unique, and what works for one borrower may not suit another. Consider your financial goals, risk tolerance, and current loan features before making this important decision.

Call one of our team or book an appointment at a time that works for you to discuss whether refinancing to a fixed rate suits your circumstances.