Smart ways to switch from fixed to variable rates

Why Consider Switching from Fixed to Variable?

If you're coming off a fixed rate period, you might be wondering what happens next with your home loan. Many Raceview homeowners face this decision when their fixed rate expiry approaches. The option to refinance to a variable interest rate can potentially unlock savings and provide access to features that weren't available during your fixed term.

When your fixed rate period ends, most lenders will automatically move you to their standard variable rate, which may not be competitive. This is the perfect time to conduct a home loan health check and explore whether switching to a variable rate makes sense for your financial situation.

Variable interest rates can offer flexibility that fixed rates cannot. These include features like offset accounts, redraw facilities, and the ability to make extra repayments without penalty. For homeowners in Raceview looking to improve cashflow or access equity for investment, these features can make a significant difference.

Understanding the Benefits of Variable Rates

Variable rates fluctuate with market conditions, which means your interest rate can go down as well as up. While this involves some uncertainty, variable rates often start lower than fixed rates and give you access to features that can help reduce your overall loan costs.

Key advantages of variable rates include:

• Offset accounts: Link a transaction account to your mortgage, reducing the interest charged on your loan amount
• Redraw facilities: Access extra repayments you've made when you need them
• Unlimited extra repayments: Pay off your mortgage faster without penalty fees
• Potential for lower rates: Take advantage when the market moves favourably
• Flexibility to refinance: No break costs if you decide to switch lenders

When to Consider Refinancing

Timing your refinance application can make a substantial difference to your financial outcome. The ideal time to start exploring your options is typically 3-6 months before your fixed rate period ends. This gives you enough time to compare refinance rates, complete a loan review, and submit your refinance application.

Several situations make refinancing particularly worthwhile:

1. Your fixed rate is expiring and the revert rate is significantly higher than current market rates
2. You want to access equity in your property for investment or renovations
3. You're paying too much interest compared to rates available in the market
4. You need features like an offset account or redraw facility
5. You want to consolidate other debts into your mortgage

The Refinance Process Explained

Understanding the refinance process helps you prepare and ensures a smoother transition. The journey typically involves these steps:

Property Valuation: Your lender will arrange a property valuation to determine your current loan-to-value ratio. This affects what rates you can access and whether you'll need lenders mortgage insurance.

Application and Documentation: You'll need to provide updated financial information including income verification, employment details, and information about your expenses and existing debts.

Loan Approval: Once submitted, your refinance application goes through assessment. This typically takes 7-14 days, though timeframes can vary.

Settlement: After approval, the new lender pays out your existing loan and your new mortgage begins.

Accessing Equity Through Refinancing

One powerful reason to refinance is releasing equity in your property. If your Raceview home has increased in value since you purchased it, you may be able to unlock equity and use it for various purposes.

You might want to access equity to:

• Purchase an investment property and start expanding your property portfolio
• Fund home renovations that add value to your property
• Consolidate high-interest debts like credit cards or personal loans
• Invest in other wealth-building opportunities

A cash out refinance allows you to increase your loan amount and receive the difference as cash, while still potentially accessing a lower interest rate than your current fixed rate revert rate.

Comparing Your Options

Not all variable rates are created equal. When you're looking to switch from fixed to variable, it's essential to compare more than just the headline interest rate. Consider the total package:

• Interest rates: Are you accessing a lower interest rate that will save you money over time?
• Ongoing fees: Monthly fees and annual package fees can add up
• Features: Does the loan include the offset account or redraw facility you need?
• Flexibility: Can you make extra repayments or redraw without restrictions?
• Service quality: How responsive is the lender's customer service?

The loan amount and your borrowing situation will also influence which products are available to you. A comprehensive loan review can help identify which features matter most for your circumstances.

Why Raceview Homeowners Choose Variable Rates

Homeowners in Raceview often select variable rates for their practicality. The ability to link an offset account to your home loan can substantially reduce your interest costs. Every dollar in your offset account reduces the balance on which interest is calculated, potentially saving you thousands over the life of your loan.

Redraw facilities provide another layer of financial flexibility. If you've been making extra repayments on your mortgage, you can typically redraw these funds if needed for emergencies or opportunities. This creates a useful financial buffer while still reducing your interest over time.

For those who are currently stuck on a high rate after their fixed rate expiry, switching to a competitive variable rate can mean immediate monthly savings. These savings can improve cashflow, allowing you to redirect funds toward other financial goals.

Making Your Decision

Deciding whether to refinance from fixed to variable involves considering your personal circumstances, financial goals, and risk tolerance. Some questions to ask yourself include:

• How comfortable am I with rate fluctuations?
• Do I value flexibility over certainty?
• Will the features of a variable loan benefit my situation?
• Can I potentially save money by refinancing now?
• Am I planning to access equity in the near future?

For personalised guidance on whether refinancing to a variable rate is right for your Raceview property, speaking with an experienced mortgage broker can clarify your options and help you understand the potential savings.

Taking the Next Step

If you're coming off a fixed rate or considering a move to variable, now is the time to explore your options. Don't wait until your fixed rate period ends and you're automatically moved to a potentially higher revert rate. By being proactive, you can potentially access better interest rates and features that align with your financial goals.

A thorough assessment of your current situation can reveal opportunities to save money through refinancing, access equity for your next property purchase, or improve your mortgage structure with features like offset accounts.

Call one of our team at Simple Lending or book an appointment at a time that works for you. We'll review your current mortgage, compare refinance rates, and help you understand whether switching from fixed to variable could benefit your financial future.