What are the Reasons to Refinance from Fixed to Variable

Why Navy Members Consider Switching from Fixed to Variable

Refinancing from a fixed rate to a variable rate gives you access to features your current loan blocks and may reduce what you pay in interest if rates have moved in your favour. Many Navy members locked in rates during the pandemic period and are now coming off terms that sit well above current variable offerings. The decision to refinance depends on how long you have left on your fixed term, what your current rate is, and whether the features on a variable loan match your financial priorities right now.

What Happens When Your Fixed Rate Period Ends

When your fixed rate period ends, your loan automatically moves to your lender's standard variable rate unless you take action. That revert rate is typically higher than what new borrowers are offered and rarely includes competitive features like offset accounts or fee-free extra repayments. If your fixed term is ending in the next few months, you need to decide whether to stay with your lender, negotiate a new rate, or refinance to a different product. Most lenders allow you to start the refinance process up to six months before your fixed term expires without triggering break costs.

Consider a Navy member currently paying 5.8% on a fixed rate with three months remaining. Their lender's revert rate is 6.4%, but current variable rates with offset accounts are sitting around 6.0% to 6.2% depending on the lender and loan amount. Refinancing to a variable product before the fixed term expires locks in a rate below the revert option and adds access to an offset account that wasn't available under the fixed structure. The outcome is a lower rate than doing nothing and flexibility to manage cashflow during deployments.

Access to Offset Accounts and Redraw Features

Variable loans give you access to offset accounts and redraw facilities that most fixed rate products don't include. An offset account is a transaction account linked to your home loan where the balance reduces the interest you're charged each month. If you have $20,000 sitting in an offset and owe $400,000 on your mortgage, you only pay interest on $380,000. For Navy members managing irregular income cycles or saving for leave periods, an offset account gives you the ability to park funds without losing access to them.

Redraw facilities let you withdraw extra repayments you've made on top of your minimum. Not all lenders offer unlimited redraw, and some charge fees or impose minimum withdrawal amounts, so the terms matter. If you're likely to need access to extra funds during a posting or while managing a property remotely, a variable loan with a no-fee redraw can make that process straightforward.

Break Costs and When They Apply

If you refinance before your fixed rate period ends, you may be charged break costs by your current lender. Break costs apply when the lender loses money because you're exiting a fixed rate early and they can't re-lend that amount at the same rate you were locked into. The calculation depends on the difference between your fixed rate and the current wholesale rate for the remaining term, plus the outstanding loan amount. If rates have increased since you fixed, break costs are usually minimal or zero. If rates have dropped, the charge can run into thousands of dollars.

You can request a break cost estimate from your lender at any time. If you're more than a few months from the end of your fixed term and rates have fallen, it's worth comparing the break cost against the total interest you'd save by refinancing now versus waiting. In most cases, if you're within three to six months of your fixed term ending, waiting avoids the cost without giving up much in potential savings.

Releasing Equity for Investment or Other Purposes

Refinancing to a variable rate also allows you to access equity in your property if your home has increased in value since you bought it or if you've paid down a portion of your loan. Equity release involves borrowing against the value your property has gained, typically capped at 80% of the current valuation to avoid lenders mortgage insurance. Navy members often use equity to fund a deposit on an investment property, consolidate other debts, or cover costs related to a posting.

Variable loans generally allow you to increase your loan amount as part of the refinance without needing to reapply from scratch. Fixed rate loans either don't allow additional borrowing mid-term or charge significant fees to do so. If you're planning to expand your property portfolio or need to access funds in the next 12 to 24 months, switching to a variable structure gives you that option without waiting for your fixed term to expire.

How the Refinance Process Works for Navy Members

The refinance process typically takes three to four weeks from application to settlement, though it can stretch longer if you're deployed or if the property valuation takes time to arrange. You'll need to provide proof of income, current loan statements, and identification. For Navy members, income verification usually includes recent payslips showing base salary and allowances. Some lenders will include sea-going allowance and other regular payments when calculating your borrowing capacity, while others won't, so it's worth confirming how your pay structure is treated upfront.

Most lenders will organise a property valuation as part of the refinance application to confirm your home's current value. If you've made improvements or if the local market has moved since you purchased, the valuation may come in higher than expected, which increases your usable equity. If the valuation is lower than you need, you may need to adjust the loan amount or provide additional documentation to support the application.

Variable Rate Flexibility During Postings and Deployments

Variable loans give you the flexibility to make extra repayments without penalty, which matters if you're managing a home loan while posted interstate or deployed. If you receive a retention bonus, tax return, or other lump sum, you can put that straight onto your loan and reduce your interest costs without needing lender approval or paying a fee. That flexibility also works in reverse - if you've built up extra repayments in your redraw or savings in your offset, you can access those funds if your circumstances change.

If you're managing a property remotely, having an offset account linked to your mortgage means rental income or other deposits can sit in that account and reduce your interest each month without requiring any manual transfers. That removes one task from your financial admin and makes sure your money is working for you even when you're not actively managing it.

When Staying Fixed Makes More Sense

Refinancing to a variable rate isn't the right move in every situation. If you're more than six months into a fixed term and current variable rates are higher than what you're locked into, staying put until your fixed period ends will save you more than switching early. If rates are trending upward and you want certainty over your repayments for the next few years, re-fixing or splitting your loan between fixed and variable may suit your circumstances over going fully variable.

If your fixed rate is due to expire and you don't need offset features or the ability to make extra repayments, negotiating a new fixed term with your current lender might deliver a lower rate without the cost and effort of refinancing. A loan health check can help you compare your options based on your current rate, remaining term, and what you're trying to achieve over the next few years.

Reaching Out

If your fixed rate is ending soon or you're weighing up whether to refinance before it does, call one of our team or book an appointment at a time that works for you. We'll run through your current loan structure, what's available now, and whether switching to a variable rate makes sense based on your rate, your timeline, and your plans for the property.

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