What Not to Do When Switching from Variable to Fixed

A variable rate that climbs by 0.50% over six months can add hundreds to your monthly repayment, and if you own in Kingston where property values have held firm, you might be thinking about locking in a fixed rate before things move again.

The decision to switch comes down to what you expect rates to do and how long you want certainty over your repayment. If you think rates will fall in the next year or two, fixing now locks you out of those savings. If you think they will hold or rise, a fixed rate gives you breathing room. What catches people out is not the decision itself but the way they go about it.

Fixing Without Checking What You Lose

Most variable loans come with an offset account that reduces the interest you pay on the full loan balance. When you refinance to a fixed rate, most lenders either remove the offset or stop it from reducing your interest calculation during the fixed period. If you have $30,000 sitting in offset and you are paying interest on a $500,000 loan, that offset is saving you around $200 a month at current variable rates. Lock into a fixed product without offset functionality and that saving disappears, even if the fixed rate itself is lower.

Consider a borrower in Kingston who refinanced to a fixed rate 0.40% below their existing variable rate. They had $45,000 in their offset account. The lower fixed rate saved them around $165 a month, but losing the offset benefit cost them roughly $235 a month. The overall position left them worse off, and they were locked in for three years.

Before you apply, confirm whether the fixed product includes a working offset account. Some lenders offer it, most do not. If you rely on offset to manage tax or keep your loan balance low, a fixed rate without it will cost you more than the rate difference suggests.

Locking In for Too Long

Fixed rate terms typically run from one to five years. The longer the term, the higher the rate, because lenders price in the risk of holding your funding cost steady for an extended period. A five-year fixed rate might sit 0.60% above a two-year fixed rate, and over five years that difference adds up.

If you fix for five years and rates drop after 18 months, you are stuck paying the higher rate unless you are willing to pay break costs, which can run into tens of thousands depending on how far rates have moved. If you fix for one year and rates rise after that, you are back to square one when the fixed period ends.

The term you choose should match how long you genuinely need certainty. If you want to lock in repayments while you are on parental leave or managing a period of irregular income, a two or three-year term usually makes sense. If you are fixing because you think rates will keep climbing for the next four years, that is a different calculation, but it is also a bet on something none of us can predict with confidence.

Applying Without Comparing Fixed Rate Products

Not all fixed rates are structured the same way. Some allow unlimited extra repayments during the fixed period, some allow $10,000 or $20,000 per year, and some allow none at all. If you are used to paying extra on your variable loan and you lock into a fixed product that restricts additional payments, you lose the ability to reduce your loan balance ahead of schedule.

In our experience, borrowers in Kingston who have sold an investment property or received an inheritance often want to put a lump sum toward their home loan. If that happens during a fixed rate period and your loan does not allow it, you either pay a fee to break the loan or sit on the cash without being able to use it to reduce debt.

Another product difference is redraw. Some fixed loans let you redraw extra payments you have made, others do not. If you might need access to any extra funds you contribute, check the redraw terms before you commit. A fixed rate that does not let you pull money back out is less useful if your circumstances change.

Comparing fixed rate products means looking at the rate, the offset arrangement, the extra repayment limit, the redraw terms, and the break cost formula. All of those matter, and a slightly higher rate with the right features can be more valuable than the lowest rate with restrictions you did not expect.

Ignoring the Refinance Process Timing

Refinancing takes time. From application to settlement, most refinance applications run between three and six weeks, depending on the lender, the valuation process, and how quickly you provide supporting documents. If you see a fixed rate you want to lock in and you assume you can secure that rate today, you will be disappointed. Lenders typically honour the rate that is current on the day your loan settles, not the day you apply.

That means if rates rise between application and settlement, you could end up with a higher fixed rate than you expected. Some lenders offer a rate lock facility that guarantees the rate for 90 days from application, but not all do, and some charge a fee for it. If locking in a specific rate is the reason you are refinancing, confirm the lender's rate lock policy before you start the application.

Timing also matters if your current fixed rate period is about to end. If you are coming off a fixed rate and you want to move to a new fixed term with a different lender, start the application at least a month before your current fixed period expires. Leaving it until the last week creates unnecessary pressure and increases the chance you will revert to your current lender's standard variable rate while the new loan is still processing.

Switching Lenders Without Reviewing Your Full Position

Refinancing to lock in a fixed rate is often treated as a rate-switching exercise, but it is also an opportunity to restructure your loan in ways that improve your overall position. If you have equity in your Kingston property and you have been thinking about consolidating other debt, accessing funds for renovations, or setting up a split loan structure, a refinance to a new lender is the cleanest time to do it.

A split loan lets you fix part of your loan and leave the rest on a variable rate with offset. That way you get some repayment certainty while still keeping the ability to make extra payments and benefit from offset on the variable portion. If rates fall, the variable portion drops with them. If rates rise, the fixed portion stays where it is. It is not the right structure for everyone, but for borrowers who want some protection without giving up all the flexibility of a variable loan, it works.

Before you commit to refinancing purely to switch from variable to fixed, sit down with someone who can review your full loan structure, your offset balance, your repayment habits, and what you might need in the next few years. The right answer might be a full switch to fixed, or it might be a split, or it might be staying variable if your offset is doing enough of the heavy lifting already.

If you are in Kingston and you are thinking about locking in a rate, call one of our team or book an appointment at a time that works for you. We will walk through your current loan, the fixed products that suit your situation, and whether refinancing makes sense right now or if you are in a position where staying put is the smarter move.

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