What Not to Do When Refinancing from Fixed to Variable

If your fixed rate period is ending, you're probably looking at whether to refinance to a variable rate or stay with your current lender.

The variable rates your lender offers when your fixed rate period ends are often higher than what you'd qualify for with a different lender. If you're a pharmacist with stable employment and a clean repayment history, refinancing your home loan can give you access to a lower rate and loan features that weren't available when you first borrowed.

Why Pharmacists Refinance After Fixed Rate Expiry

Most pharmacists refinance from fixed to variable to reduce their interest costs and regain access to offset accounts or redraw facilities. Fixed rates offered at expiry are typically higher than introductory variable rates available to new borrowers, particularly for professionals in stable occupations. Switching lenders lets you negotiate as a new customer rather than accepting whatever your existing lender offers.

Consider a hospital pharmacist who locked in a fixed rate of 2.5% three years ago on a loan of $550,000. That rate is expiring, and the lender has offered a variable rate of 6.4%. A different lender is offering variable rates starting at 5.9% for pharmacists, along with an offset account. Over a year, the difference between 6.4% and 5.9% on a $530,000 balance is around $2,650 in interest.

The offset account matters just as much. With $40,000 sitting in an offset, the effective rate drops further. Without it, that $40,000 earns minimal interest in a savings account while the full loan balance accrues interest.

What Happens If You Don't Refinance

You revert to your lender's standard variable rate. That rate is often not negotiated and may not reflect what the lender is offering to attract new borrowers. You're treated as an existing customer, which usually means less competitive pricing. The rate might be 0.3% to 0.6% higher than what you'd get by switching, depending on the lender and your loan amount.

You also remain locked into the loan features you originally signed up for. If your fixed loan didn't include an offset account or free additional repayments, those restrictions continue. For pharmacists with irregular income from locum work or performance bonuses, losing access to flexible repayment options can mean paying more interest than necessary.

Refinancing to Access an Offset Account

An offset account reduces the interest you're charged by offsetting your savings against your loan balance. If you hold $30,000 in an offset account and owe $500,000, you only pay interest on $470,000. The interest saved compounds over time, and the funds remain accessible if you need them.

Many pharmacists refinance specifically to add this feature. During a fixed rate period, most lenders don't offer offsets. When you refinance to a variable rate, you can select a loan product that includes one. This becomes particularly relevant if you're saving for a second property, holding funds for a renovation, or keeping a buffer for tax payments as a locum or contractor.

If you're self-employed or working as a consultant pharmacist, an offset account gives you a place to park business income or GST set-asides while reducing your interest costs. The alternative is a redraw facility, which requires you to make extra repayments and then withdraw them later. Redraw can trigger complications if the lender treats the withdrawal as a new loan purpose or restricts access during refinancing.

Refinance Application Requirements for Pharmacists

Lenders assess your current income, employment status, and loan serviceability when you apply to refinance. For pharmacists employed in hospitals, aged care, or clinical roles, the process is usually straightforward. You'll need recent payslips, a letter of employment, and proof of your current loan balance and repayment history.

If you're self-employed or working as a locum, lenders may ask for additional documentation such as tax returns, BAS statements, or an accountant's letter. Some lenders will accept a single year of tax returns for pharmacists with consistent locum work, while others require two years.

The property valuation is another step. Lenders order a valuation to confirm the current value of your property. If the value has increased since you bought, your loan-to-value ratio improves, which can give you access to lower rates. If the value has dropped or remained flat, you may need to provide additional equity or accept a slightly higher rate.

When Refinancing Costs More Than It Saves

Refinancing involves costs including application fees, valuation fees, and sometimes discharge fees from your current lender. These typically range from $1,000 to $2,500 depending on the lender and whether you're also releasing equity or restructuring your loan.

If the interest rate difference is small and your remaining loan balance is low, the upfront costs can outweigh the savings. For example, if you owe $200,000 and the rate difference is 0.2%, your annual interest saving is around $400. If refinancing costs $1,500, it takes nearly four years to break even.

The calculation shifts if you're also gaining access to features that improve your cash flow or if you're consolidating other debts into your mortgage. In those cases, the value isn't just the rate reduction. You're also removing the need for separate personal loans or credit card balances that carry higher interest rates.

Releasing Equity When You Refinance

If your property has increased in value, you can release equity when you refinance. This involves borrowing a larger amount than your current loan balance and using the difference for another purpose such as buying an investment property, funding a renovation, or consolidating debt.

Lenders will reassess your borrowing capacity based on your current income and expenses. If you're a salaried pharmacist, the assessment is based on your payslips and employment contract. If you're self-employed, lenders use your taxable income from recent returns, which may be lower if you've claimed business deductions.

Consider a community pharmacist who bought a property five years ago for $480,000 with a loan of $430,000. The property is now valued at $580,000, and the remaining loan balance is $400,000. Refinancing to 80% of the current value would allow a loan of $464,000, releasing $64,000 in usable equity. That amount can be used as a deposit on a second property or to renovate and increase the value of the existing home.

Fixed Rate Break Costs and Timing

If your fixed rate period hasn't ended yet, refinancing early can trigger break costs. These are fees the lender charges to compensate for the interest they lose when you exit the fixed term early. The amount depends on how much time remains on your fixed term and how much interest rates have moved since you locked in.

Break costs can be substantial if rates have dropped since you fixed. If rates have risen, break costs may be minimal or even zero. You can request a break cost estimate from your lender before deciding whether to refinance early.

Once your fixed rate expires, there are no break costs. You're free to refinance or switch lenders without penalty. The ideal time to start the refinance process is around 90 days before your fixed term ends. This gives you time to compare lenders, submit an application, and settle the new loan close to the expiry date.

Choosing Between Split Loans and Full Variable

Some pharmacists prefer to split their loan between fixed and variable portions rather than moving entirely to variable. A split loan lets you fix part of your balance for rate certainty while keeping the other part variable for flexibility and offset access.

The variable portion can be linked to an offset account, allowing you to reduce interest costs on that portion while benefiting from a locked rate on the remainder. If rates rise, the fixed portion provides a buffer. If rates fall, the variable portion adjusts downward.

The downside is complexity. You're managing two loan accounts with different rates, features, and potential expiry dates. Some lenders charge higher rates on split loans or limit the features available on each portion. If you value simplicity and expect rates to remain stable or decrease, a full variable loan with an offset is often more practical.

If you're weighing up your options, a loan health check can clarify whether your current loan structure still matches your circumstances or whether refinancing to a different structure would reduce your costs.

Your current lender won't alert you to lower rates elsewhere. If your fixed rate is expiring or you're already on a variable rate that hasn't been reviewed in over a year, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions