Interest rates. They’re like the weather—always changing, sometimes predictable, but often catching you off guard. If you’ve got a home loan, chances are you’ve asked yourself at least once: should I switch from a fixed rate to a variable rate? With economic shifts and interest rate hikes (or drops), it’s a question many Australians are grappling with in 2025.
Let’s break it down in simple terms so you can decide whether making the switch is the right financial move for you.
Understanding Fixed and Variable Rates
A fixed-rate mortgage means your interest rate stays the same for a set period—usually between one and five years. This is great for budgeting, as your repayments remain consistent regardless of what the market does. The downside? If rates drop, you’re stuck paying more than you might need to.
A variable-rate mortgage, on the other hand, fluctuates with the market. When rates drop, you save money. But when they rise, your repayments go up, which can be a bit nerve-wracking.
Why Consider Switching to a Variable Rate?
If you’re currently on a fixed rate, switching to a variable rate could give you more flexibility and potential savings. Here are some key reasons people make the switch:
- Interest Rates Are Dropping – If market conditions suggest rates will continue to decline, a variable rate could help you take advantage of lower repayments.
- Extra Repayments & Flexibility – Fixed loans often come with restrictions on making extra repayments, while variable loans generally allow you to pay down your mortgage faster without penalty.
- Offset and Redraw Facilities – Many variable-rate loans offer offset accounts and redraw facilities, which can help reduce the amount of interest you pay over time.
- Market Timing – Some homeowners try to time the market, locking in a fixed rate when interest rates are low and switching to a variable rate when they believe rates will decline.
When Staying Fixed Might Be the Smarter Choice
Switching isn’t always a good idea. If any of these apply to you, it might be best to stick with your fixed rate for now:
- Break Costs Are Too High – Many fixed-rate loans have exit fees or break costs, which can eat up any potential savings from switching.
- Rates Are Uncertain – If there’s speculation that rates could go up significantly, staying on a fixed rate protects you from unexpected hikes.
- You Like Stability – If budgeting is a priority and you don’t want any surprises, a fixed rate offers peace of mind.
- Short-Term Fixed Period Left – If your fixed rate is set to expire soon, it might be worth riding it out instead of paying fees to break the loan early.
How to Make the Switch
Thinking about making the move? Here’s what you need to do:
- Check Your Loan Terms – Review your loan contract to see what break costs and exit fees apply.
- Compare New Loan Options – Shop around for a competitive variable rate that offers flexibility and features that suit your needs.
- Do the Maths – Work out whether the potential savings outweigh the costs of switching.
- Speak to a Mortgage Broker – Professionals (like the team at Wealthy You) can help you navigate the numbers and find the best deal.
Should You Stay or Should You Go?
Switching from a fixed to a variable rate is a bit like deciding whether to take an umbrella on a cloudy day. Sometimes it pays off, other times you get caught in the rain.
If rates are dropping, you want more flexibility, and the break costs are reasonable, then making the switch could be a financially smart move. But if stability is your priority and market trends are unpredictable, sticking with your fixed rate might be the safer bet.
At the end of the day, the decision comes down to your financial goals, risk tolerance, and the current market conditions. If you’re unsure, chat with a mortgage expert to make an informed choice.
FAQs
How much does it cost to switch from a fixed to a variable rate?
Break fees can vary depending on your lender and how long you have left on your fixed term. Some lenders charge thousands, while others may have minimal fees. Always check before making the switch.
Can I switch part of my loan to a variable rate?
Yes! Some lenders allow a split loan, where part of your mortgage stays fixed and the other part moves to a variable rate. This can give you the best of both worlds.
What happens if interest rates rise after I switch to variable?
If rates go up, your repayments will increase. To prepare, you can build a buffer in a savings or offset account to help manage higher repayments if needed.
Is it better to wait until my fixed term ends before switching?
It depends on the break costs and how much you could potentially save by switching earlier. If rates are dropping significantly, it may be worth breaking the loan. If not, waiting it out might be smarter.
Can I negotiate a better variable rate with my lender?
Absolutely! Lenders are often willing to offer discounts to keep customers. Always ask for a better rate, or consider refinancing with a different lender for a better deal.
If you have any questions or need further assistance, please contact us.
info@wealthyyou.com.au
☎️ (02) 7900 3288
