The Pros and Cons of Switching from Fixed to Variable Rates

Understanding Fixed to Variable Rate Refinancing

When your fixed rate period ending approaches, many Camberwell homeowners find themselves at a crossroads. The decision to refinance from a fixed interest rate to a variable interest rate requires careful consideration of your current financial situation and long-term goals.

Refinancing occurs when you replace your existing home loan with a new one, potentially from a different lender. This process allows you to access loan options from banks and lenders across Australia, often providing opportunities to secure more favourable terms than your current arrangement.

Benefits of Switching to Variable Rates

Variable interest rates offer several advantages that may align with your financial objectives:

• Rate Reductions: When the Reserve Bank of Australia cuts rates, variable loan holders typically benefit from reduced loan repayments
• Additional Features: Variable loans often include offset accounts, redraw facilities, and the ability to make extra repayments without penalties
• Flexibility: You can usually change your loan term or make additional payments to reduce the principal faster
• No Rate Shock: Unlike fixed loans that can jump significantly at renewal, variable rates move gradually

Potential Drawbacks to Consider

While variable rates offer flexibility, there are considerations to keep in mind:

• Rate Volatility: Your interest rate can increase, potentially raising your monthly repayments
• Budgeting Challenges: Fluctuating repayments can make long-term financial planning more complex
• Economic Sensitivity: Variable rates respond to economic conditions and Reserve Bank policy changes

The Refinancing Application Process

When you decide to refinance, the application process typically involves:

1. Documentation Gathering: You'll need recent bank statements, payslips, and details about your current loan amount
2. Property Valuation: Lenders assess your property's current value to determine loan-to-value ratios
3. Financial Assessment: Lenders review your financial situation to confirm your ability to service the new loan
4. Loan Settlement: The new lender pays out your existing loan and establishes the new facility

AXTON Finance offers a streamlined application process, helping Camberwell residents access loan options from banks and lenders across Australia while minimising paperwork delays.

Strategic Refinancing Opportunities

Refinancing isn't just about accessing a lower interest rate. Many homeowners use this opportunity to:

• Release Equity: If your property has increased in value, you might consider releasing equity in your property for renovations or investments
• Debt Consolidation: Consolidate debts from credit cards or personal loans into your home loan at a lower rate
• Purchase Planning: Release equity to buy the next property, using your current home's increased value as leverage
• Loan Restructuring: Adjust your loan structure to align with changed financial circumstances

Evaluating Your Current Position

Before switching from fixed to variable rates, conduct a comprehensive home loan health check. Consider:

• Your current interest rate compared to available market rates
• The remaining loan amount and your property's current value
• Your financial stability and ability to handle potential rate increases
• Whether you want to access additional loan features
• Your long-term financial goals and property plans

Working with Mortgage Professionals

Mortgage brokers can help you check eligibility for special lender policies that might not be widely advertised. They can potentially access a lower interest rate through their lender relationships and provide insights into which lenders offer the most suitable terms for your circumstances.

AXTON Finance works with Camberwell clients to evaluate refinance interest rates across multiple lenders, ensuring you understand all available options before making your decision.

Making the Right Choice for Your Future

The decision to switch from fixed to variable rates depends on your personal financial situation, risk tolerance, and market outlook. Variable rates offer flexibility and potential savings when rates fall, but require comfort with payment fluctuations.

Consider your employment stability, budget flexibility, and whether you plan to make extra repayments or access additional loan features. These factors will help determine whether variable rates align with your financial strategy.

If you're approaching the end of your fixed rate period or considering your refinancing options, professional guidance can help you understand the implications and identify better loan options suited to your needs.

Call one of our team or book an appointment at a time that works for you to discuss your refinancing options and explore how switching to a variable rate might benefit your financial future.