Avoid these 3 mistakes when switching to fixed

Switching from a variable rate to a fixed rate can protect you from rising repayments, but it only works if the fixed rate structure suits how you actually use your loan.

Many borrowers in Shoalwater lock in a rate without checking how it affects their offset account, redraw facility, or ability to make extra repayments. Once the fixed rate period starts, those features are either restricted or gone entirely, and you cannot reverse the decision without paying break costs.

Losing your offset account balance

When you refinance to a fixed rate, most lenders will not allow an offset account to remain linked to the fixed portion of your loan. The account may stay open, but the balance stops reducing your interest.

Consider a borrower with a loan amount of $450,000 and $60,000 sitting in an offset account. On a variable rate, that $60,000 reduces the balance on which interest is calculated. If they switch the entire loan to fixed without understanding this, the $60,000 continues to sit in the account but no longer offsets anything. Over a three-year fixed term, that could mean paying interest on an extra $60,000 that should have been working in their favour.

The way around this is to split the loan. You keep part of it on variable with the offset attached, and fix the remainder. That way, your savings continue to reduce interest on the variable portion, and you still lock in certainty on the rest.

Fixing the wrong loan amount

Some borrowers fix their entire loan because it feels simpler, but this creates problems if you want to pay down the loan faster or access funds later.

Most fixed rate products limit extra repayments to around $10,000 per year. If you receive a bonus, inheritance, or sale proceeds and want to put $40,000 toward the mortgage, you will either be blocked or charged break costs on the excess. The same applies if you need to access equity for an investment property purchase or renovation. Once the loan is fixed, releasing equity typically means breaking the fixed rate contract and paying a fee that can run into thousands of dollars.

In our experience, borrowers who expect a lump sum or who plan to buy another property within the next few years should keep at least part of their loan on variable. A loan health check can help you work out the right split based on what you are likely to need over the fixed rate period.

Fixing when your circumstances are about to change

A fixed rate only makes sense if your income and expenses are going to remain stable. If you are planning parental leave, a career change, or selling the property, fixing the entire loan can trap you.

Break costs are calculated based on the difference between your fixed rate and the current wholesale rate your lender can access. If rates have dropped since you locked in, the lender has lost the opportunity to lend that money at the higher rate, and they charge you the difference. Depending on how much time is left on your fixed term and how far rates have moved, that cost can be several thousand dollars.

If you are likely to sell or restructure within two years, a shorter fixed term or a smaller fixed portion reduces the risk. You can still lock in some certainty without locking yourself in completely.

Timing the switch without checking current refinance rates

Many borrowers wait until their fixed rate period is ending to think about switching, but refinancing to a new fixed rate works differently from rolling over within the same lender.

When you refinance to switch from variable to fixed, you are submitting a new refinance application. That means a fresh property valuation, updated income verification, and a full credit assessment. If property values in Shoalwater have dropped or your income has changed, you may not be approved for the same loan amount, or you may be offered a higher rate than you expected.

The other issue is timing. A refinance application typically takes two to four weeks to settle. If you decide to lock in a rate and it moves up during that period, you may miss the rate you were targeting. Some lenders allow you to lock in a rate at application, but not all do, and the lock period is usually limited to 90 days.

If you are serious about switching to fixed, start the refinance process at least a month before you want the new rate to take effect. That gives you time to compare offers, understand the features, and lock in the rate without rushing.

Understanding what you are actually locking in

A fixed rate gives you predictable repayments, but it does not reduce the total interest you pay unless the rate you lock in is lower than what the variable rate would have averaged over the same period. You are trading flexibility for certainty, not necessarily for savings.

If your main goal is to reduce how much interest you pay over the life of the loan, keeping the loan on variable with an offset account and making extra repayments usually delivers a stronger result. If your goal is to protect yourself from rising repayments, fixing part of the loan makes sense, but you need to choose the right portion and the right term.

A split structure lets you hold both strategies at once. You fix enough to give you certainty on your core repayment, and you keep enough on variable to take advantage of offset, redraw, and extra repayments. That approach works particularly well in areas like Shoalwater, where many households have variable incomes from shift work, small business, or commission-based roles.

If you are thinking about switching to fixed, the structure matters more than the rate. Call one of our team or book an appointment at a time that works for you, and we will run through your current loan, your goals over the next few years, and whether fixing makes sense for your situation.

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