Switching Variable to Fixed: The Pros and Cons

Why Cannon Hill Borrowers Are Locking in Rates

Variable rate holders in Cannon Hill are increasingly looking at fixed options, particularly those who've seen their repayments climb over the past year or two. Refinancing from variable to fixed gives you rate certainty for a set period, which means predictable repayments and protection from further rate rises.

The decision makes sense when you value budget certainty over flexibility, or when you expect rates to climb further. It stops making sense when you're likely to sell, pay down large lump sums, or need access to funds during the fixed period.

Consider a borrower with a $550,000 loan on a variable rate who refinances to a three-year fixed product at current rates. Their monthly repayment becomes fixed, which helps with household budgeting, but they lose access to offset accounts and face break costs if they exit early. That trade-off works if stability is the priority, but it doesn't suit everyone.

What You Give Up When You Fix

Fixed rates come with restrictions that variable loans don't. Most fixed products limit extra repayments to around $10,000 to $30,000 per year, and offset accounts are either unavailable or don't reduce the interest you're charged. If you're used to parking your salary in an offset to reduce interest costs, switching to fixed means that benefit disappears.

Break costs apply if you exit the fixed term early, whether that's because you're selling, refinancing again, or paying out the loan. The calculation is based on the difference between your fixed rate and the rate the lender can now lend that money at, plus the time remaining. If rates have dropped since you fixed, the break cost can run into thousands of dollars.

In a scenario where someone fixes for five years and sells their Cannon Hill home after two, they're liable for break costs even though they had no choice but to exit. That's why shorter fixed terms, or splitting your loan between fixed and variable, can reduce the risk of being locked into something that no longer fits.

The Split Strategy That Keeps Your Options Open

Splitting your loan between fixed and variable lets you lock in some certainty while keeping access to features like offset accounts and unlimited extra repayments on the variable portion. It's a middle ground that works when you want rate protection but aren't willing to give up all flexibility.

As an example, a Cannon Hill borrower with a $600,000 loan might fix $400,000 for three years and leave $200,000 on variable. The fixed portion gives them predictable repayments on two-thirds of the loan, while the variable portion keeps their offset account active and allows them to make lump sum payments without penalty. If they need to sell or refinance, the break cost only applies to the fixed portion, which reduces the financial impact.

The split doesn't need to be 50/50. Some borrowers fix 70% and keep 30% variable, others do the reverse. The right mix depends on how much rate certainty you need versus how much flexibility you want to keep. We regularly see borrowers underestimate how useful that variable portion becomes when circumstances change.

When Fixed Rates Actually Cost More

Fixed rates aren't always lower than variable, and even when they are, the overall cost depends on how long you stay in the loan and whether you trigger break costs. If you fix at a rate that's higher than the current variable, you're paying for certainty, not savings.

If rates drop after you fix, you're stuck paying above market while variable rate holders benefit from the reduction. That's the trade-off. You're not betting that fixed will be lower over the term, you're paying for the certainty that your rate won't go up, even if it does everywhere else.

For Cannon Hill borrowers who've been on variable through recent rate rises, fixing now might feel like closing the gate after the horse has bolted. But if the priority is avoiding further increases rather than chasing the lowest possible rate, fixing still makes sense. It just needs to be a deliberate choice, not a reaction to market noise.

How the Refinancing Process Works

Refinancing to switch from variable to fixed follows the same process as any other refinance. The lender will reassess your income, expenses, and the property valuation to make sure the loan still fits their criteria. If your circumstances have changed since you took out the original loan, such as a drop in income or an increase in other debts, that can affect your ability to refinance.

Most lenders don't charge application fees for refinancing, but you'll still need to cover valuation costs, discharge fees from your current lender, and any settlement fees with the new lender. Those costs typically sit between $800 and $1,500, depending on the lender and the complexity of the loan.

If your current loan is already on a fixed rate and you want to switch lenders or move to a different fixed term, break costs apply with your existing lender before the new loan even settles. That's why a loan health check before you commit to refinancing helps you understand whether the numbers actually work in your favour.

Cannon Hill Property Values and Borrowing Capacity

Cannon Hill's median house price sits comfortably above Brisbane's average, and the suburb's proximity to the Gateway Motorway, Westfield Carindale, and the bayside precincts makes it popular with families and investors. If your property value has increased since you bought, refinancing can also give you access to equity, either to renovate, invest, or consolidate other debts.

Lenders reassess your property value when you refinance, which means if your home is now worth more, your loan-to-value ratio improves. That can open up access to lower rates or remove the need for lenders mortgage insurance if you were previously above 80% LVR. It also means you might be able to borrow more if you're looking to access equity for another purpose at the same time as switching to fixed.

If your property value has dropped or stayed flat, refinancing can still go ahead, but your options might be more limited. Lenders base their lending on the current value, not what you paid, so if you're close to 80% LVR, you might not qualify for the lowest rates without paying LMI again.

What Happens When Your Fixed Term Ends

When your fixed rate period expires, your loan automatically reverts to the lender's standard variable rate unless you take action beforehand. That revert rate is almost always higher than the rate you'd get by refinancing or renegotiating with your current lender. Most borrowers don't realise the revert rate is often 1% to 2% above what new customers are offered, which can add hundreds of dollars to monthly repayments.

If you're coming to the end of a fixed term and considering whether to fix again, switch to variable, or move lenders, it's worth reviewing your options at least three months before expiry. That gives you time to compare rates, check your borrowing capacity, and complete the refinance before the fixed term rolls over.

Some lenders let you lock in a new fixed rate up to 90 days before your current term ends, which protects you if rates rise in the meantime. Others require you to wait until the fixed term has actually expired. Knowing which lender does what makes a difference when timing matters.

Call one of our team or book an appointment at a time that works for you. We'll walk through your current loan, what's available now, and whether switching from variable to fixed actually improves your position or just shifts the risk somewhere else.

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