Smart Ways to Switch from Fixed to Variable Rates

Refinancing from a fixed rate to a variable rate means moving from a locked rate to one that adjusts with market conditions.

Most nurses and midwives locked in fixed rates between late 2020 and early 2022, when lenders were offering rates below 2 percent. Those fixed periods are ending now, and the revert rates on offer are substantially higher than the variable rates available through home loan refinancing. Refinancing lets you choose a variable rate that gives you access to an offset account, the ability to make extra repayments without restriction, and flexibility to redraw or increase repayments as your roster income allows. The question is whether the rate reduction is large enough to cover the costs of refinancing and whether the features you gain are worth the change.

Why Your Fixed Rate Revert Rate Is Usually Higher

When your fixed rate period ends, your loan automatically reverts to your lender's standard variable rate unless you take action. Standard variable rates are typically 0.30 to 0.80 percentage points higher than the lender's discounted variable rates offered to new borrowers or refinancers. Lenders price revert rates higher because they assume most borrowers will not actively compare and switch. If your fixed rate was 1.89 percent and your revert rate is 6.50 percent, refinancing to a discounted variable rate of 5.90 percent saves you 0.60 percentage points annually on the outstanding balance. On a loan amount of $500,000, that difference is $3,000 per year in interest.

Consider a midwife who fixed $480,000 at 1.99 percent for three years in early 2022. The fixed period ends in early 2025, and the lender's revert rate is 6.45 percent. The monthly repayment on the fixed rate was approximately $2,050. On the revert rate, the repayment jumps to approximately $3,050. Refinancing to a variable rate of 5.85 percent through a mortgage broker for nurses reduces the repayment to approximately $2,850 and gives access to an offset account and unlimited extra repayments. The refinance costs, including valuation and discharge fees, total approximately $800. The saving in the first year alone is $2,400, which covers the refinance cost and delivers a net benefit.

Variable Rates Give You Offset and Redraw Access

Variable rates allow you to attach an offset account to your loan. Every dollar in the offset account reduces the balance on which interest is calculated, without restricting your access to those funds. If you have $20,000 in an offset account attached to a $450,000 loan at 5.90 percent, you only pay interest on $430,000. The annual interest saving is approximately $1,180, and you can withdraw the $20,000 at any time. Fixed rate loans do not offer offset accounts, and most restrict additional repayments to a cap of $10,000 to $20,000 per year without penalty.

Redraw facilities on variable loans let you make extra repayments and withdraw them later if your circumstances change. This is particularly useful for nurses and midwives with variable roster income. If you receive a higher proportion of penalty rate shifts in one quarter, you can pay down the loan faster. If your hours reduce in another quarter, you can redraw without applying for a new loan or increasing your interest rate. Fixed rate loans either prohibit redraw entirely or charge a fee for each withdrawal, and the amount you can access is capped.

Refinancing Costs and How to Recover Them

Refinancing involves a discharge fee from your current lender, a valuation fee, and application fees with the new lender. Discharge fees range from $300 to $500. Valuation fees range from $200 to $400 depending on the property type and location. Some lenders waive application fees for refinancers, but not all. The total upfront cost is typically $800 to $1,200. If you are refinancing to reduce your rate by 0.50 percentage points on a loan of $400,000, the annual interest saving is $2,000. You recover the refinance cost in the first six months.

Some lenders offer cashback incentives for refinancers, typically $2,000 to $4,000 depending on the loan amount. These cashbacks are paid after settlement and can offset the upfront costs. Cashback offers are time-limited and change frequently, so the availability depends on when you refinance. If a $3,000 cashback is available and your refinance costs are $1,000, the net position after settlement is a $2,000 credit. Cashback offers usually require a minimum loan amount of $250,000 to $400,000 and a minimum LVR, often capped at 80 percent.

LMI Waivers Apply to Refinancing for Registered Nurses and Midwives

If you are refinancing and your current LVR is above 80 percent, you may be required to pay Lenders Mortgage Insurance unless you qualify for a profession-based waiver. Registered nurses and registered midwives qualify for LMI waivers at several lenders, subject to income and registration requirements. Westpac, St.George, and Bank of Melbourne offer LMI waivers up to 90 percent LVR for nurses and midwives earning at least $90,000 per year, with a maximum loan amount of $5 million. People First Bank offers an LMI waiver up to 90 percent LVR for registered nurses through its Essential Services Professionals Package, with a maximum loan amount of $1,200,000.

These waivers apply to refinancing in the same way they apply to purchases. If your property has increased in value since you bought it, your LVR may have fallen below 80 percent even if you originally borrowed above that threshold. If your LVR is still above 80 percent and you meet the income and registration criteria, the waiver removes the need to pay LMI again when refinancing. This is particularly relevant for nurses and midwives who used a first home buyer loan with a low deposit and are now refinancing before the equity position has improved significantly.

When Refinancing Does Not Make Sense

Refinancing does not make sense if the interest rate saving is small and the refinance costs are high relative to your remaining loan balance. If you have $150,000 remaining on your loan and refinancing saves you 0.30 percentage points, the annual saving is $450. If the refinance costs are $1,000, you need more than two years to recover the cost, and the benefit is marginal. In that scenario, negotiating a lower rate with your current lender or making extra repayments to clear the loan sooner is usually more effective.

Refinancing also does not make sense if you plan to sell the property within 12 months. The refinance costs are recovered over time, and selling before you reach the break-even point means you pay the cost without receiving the benefit. If you are considering selling or moving interstate within the next year, review whether staying on your current loan or negotiating a rate reduction with your existing lender delivers a similar outcome without the upfront expense.

Refinancing to Access Equity for Investment or Renovation

Refinancing from fixed to variable can also be used to access equity if your property has increased in value since you purchased it. If you bought a unit in Parramatta for $620,000 three years ago and the current value is $720,000, you have gained $100,000 in equity. Refinancing at 80 percent LVR against the new valuation gives you access to $576,000, and if your current loan balance is $500,000, you can release $76,000 in usable equity. This equity can be used to fund a deposit on an investment property, complete a renovation, or consolidate other debt into your mortgage at a lower interest rate.

Equity release through refinancing is only available on variable rate loans. Fixed rate loans do not allow you to increase the loan amount mid-term without breaking the fixed rate and paying break costs. If your goal is to access equity and you are currently on a fixed rate, refinancing to a variable rate is the only pathway that does not involve a penalty.

Call one of our team or book an appointment at a time that works for you. We compare refinance rates across lenders that offer LMI waivers and offset accounts for nurses and midwives, and we structure the loan to match your income and property plans.

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