Refinancing from a variable to a fixed rate locks in your repayments at a set level for a chosen period, protecting you against future rate increases.
When you refinance to move from variable to fixed, you're essentially replacing your current loan with a new one that offers a fixed interest rate for a set term, typically one to five years. This provides certainty over your repayments during that period, which can make budgeting and financial planning more straightforward. The process involves applying with either your current lender or a new one, going through a standard credit assessment, and settling the new loan to pay out the old one.
The decision to switch often comes down to where you think rates are heading and how much value you place on certainty. If you're on a variable rate that's been climbing or you want to remove the risk of future increases affecting your cashflow, fixing can make sense. Some borrowers also use a refinance as an opportunity to access equity or improve loan features at the same time they lock in a rate.
When Refinancing to Fixed Makes Sense
Refinancing to a fixed rate is worth considering when you need predictable repayments or when you believe variable rates are likely to rise further.
Consider a borrower who refinanced a $450,000 variable rate loan in late 2022, just as rates began their upward climb. At the time, variable rates were sitting around 3.5% and fixed rates were available in the low 4% range. The borrower locked in a three-year fixed rate at 4.2%, which seemed slightly higher than their current variable rate at the time. Over the following 18 months, the variable rate increased to over 6%, meaning the fixed rate was now saving them around $650 per month compared to what they would have been paying on the variable loan. The fixed rate provided budget certainty during a period of financial uncertainty, and the borrower could plan other expenses knowing their repayments wouldn't change.
Timing matters. If variable rates have already climbed significantly and fixed rates are now lower, switching can deliver immediate savings. If variable and fixed rates are similar, the value comes from locking in that rate before any further increases. If fixed rates are noticeably higher than your current variable rate, you're paying a premium for certainty, and you need to weigh that cost against the likelihood of further rate rises.
How the Refinance Process Works
Refinancing to switch from variable to fixed follows the same process as any other refinance, including a full credit assessment and property valuation.
You'll need to provide income verification, details of your assets and liabilities, and consent to a credit check. The lender will also arrange a valuation of your property to confirm the loan amount is appropriate relative to the property's current value. This is important because lending criteria can change over time, and a lender may require a different loan-to-value ratio than when you first borrowed.
Once the application is approved and the loan is ready to settle, the new lender pays out your existing loan and registers the new mortgage on your property title. If you're refinancing with your current lender, the process is sometimes faster because they already hold your security. Either way, settlement typically takes four to six weeks from application to completion.
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Comparing Fixed Rate Options
Fixed rates vary depending on the term length, and shorter fixed periods often come with lower rates than longer ones.
A one-year fixed rate might sit below a five-year fixed rate by 0.5% or more, reflecting the lender's view of where rates are likely to head over different timeframes. If you want certainty but don't want to commit for too long, a two or three-year fixed term can offer a middle ground. Some borrowers also use a split loan structure, fixing a portion of their loan while keeping the rest variable. This approach, outlined in more detail on our page about split loans for granny flat construction, allows you to benefit from rate drops on the variable portion while still having protection on the fixed portion.
When comparing offers, consider the interest rate, the length of the fixed period, and what happens when the fixed term ends. Some loans automatically revert to a higher variable rate unless you take action before expiry, so it's worth knowing what rate you'll roll onto and setting a reminder to review your loan a few months before the fixed period ends.
Costs Involved in Refinancing
Refinancing to switch from variable to fixed usually involves application fees, valuation costs, and sometimes discharge fees from your current lender.
Most lenders charge an application or establishment fee, which can range from a few hundred to over a thousand dollars depending on the lender and loan size. Your current lender may also charge a discharge fee to close your existing loan, typically between $150 and $400. If your current loan has a variable rate with no ongoing fixed rate period, you usually won't face break costs, but if you're exiting an existing fixed rate early to move to a new fixed rate, break costs can apply and may be significant depending on rate movements since you fixed.
A valuation is required in most cases and costs between $200 and $600 depending on the property type and location. Some lenders will cover this cost as part of a refinance offer, particularly if you're borrowing a reasonable amount relative to the property value. You may also need to pay for legal fees or settlement agent costs, though these are often included in the lender's settlement process.
It's worth calculating whether the potential savings or certainty from fixing outweigh these upfront costs. If you're refinancing purely to lock in a rate and your current variable rate is still reasonable, the cost of switching might take a year or more to recover through lower repayments.
What Happens During and After the Fixed Period
Once your fixed rate is in place, your repayments remain constant for the duration of the fixed term, and you typically have limited ability to make extra repayments or access redraw.
Most fixed rate loans restrict additional repayments to a set amount per year, often around $10,000 to $30,000, and don't offer redraw or offset accounts. This means any extra funds you want to set aside for future use need to be kept separately rather than parked against your loan. If you need flexibility to make large lump sum payments or access funds, a variable loan or a split structure is usually more suitable.
When the fixed period ends, your loan will revert to the lender's standard variable rate unless you take action. This reversion rate is often higher than the discounted variable rates offered to new customers, so it's a good opportunity to review your loan again and consider refinancing if a lower rate is available elsewhere. Setting a reminder three to six months before your fixed term expires gives you time to compare offers and move if needed. Our loan health check can help you assess whether your loan is still working in your favour as your fixed period approaches its end.
Refinancing from variable to fixed isn't about chasing the absolute lowest rate available. It's about weighing certainty against flexibility and deciding whether locking in your repayments aligns with your current financial priorities and your view of where rates are likely to move. If you're unsure whether fixing makes sense for your situation, or you want to compare fixed rate offers across multiple lenders, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
Can I refinance from variable to fixed with my current lender?
Yes, most lenders will allow you to switch from variable to fixed by refinancing your existing loan with them. This is often called an internal refinance and may involve lower costs than switching to a new lender, though it's still worth comparing rates across multiple lenders to ensure you're getting a competitive offer.
How long does it take to refinance from variable to fixed?
Refinancing to switch from variable to fixed typically takes four to six weeks from application to settlement. This includes time for the lender to assess your application, arrange a property valuation, and complete the settlement process to pay out your existing loan.
Will I pay break costs when refinancing from variable to fixed?
If you're currently on a variable rate loan with no fixed period, you generally won't pay break costs. However, if you're exiting an existing fixed rate early to move to a new fixed rate, break costs may apply and can be significant depending on how rates have moved since you fixed.
What happens when my fixed rate period ends?
When your fixed rate period ends, your loan will automatically revert to your lender's standard variable rate unless you take action. This reversion rate is often higher than rates available to new customers, so it's a good time to review your loan and consider refinancing again if lower rates are available elsewhere.
Can I make extra repayments on a fixed rate loan?
Most fixed rate loans allow limited extra repayments, typically between $10,000 and $30,000 per year, but restrict or don't offer redraw or offset facilities. If you need the flexibility to make large additional repayments or access those funds later, a variable loan or split loan structure may be more suitable.
