If your fixed rate period is ending and you're self-employed, refinancing to a variable rate gives you flexibility that most fixed loans don't allow.
The decision to refinance from fixed to variable isn't just about interest rates. For self-employed borrowers, it's about accessing features like offset accounts and redraw facilities that can smooth out irregular income, plus the ability to make extra repayments without penalty. When your fixed term expires, you'll typically roll onto your lender's standard variable rate, which is often higher than what you could secure by refinancing. That's when a loan health check becomes useful.
Why Self-Employed Borrowers Refinance to Variable Rates
Variable rates give you access to loan features that aren't available on most fixed loans. Offset accounts let you park income between jobs or projects and reduce the interest charged on your loan without making a formal repayment. Redraw facilities allow you to access extra repayments when cash flow tightens. If your income fluctuates, these features matter more than a small rate difference.
Consider a self-employed tradesperson coming off a three-year fixed rate. During the fixed period, they couldn't make extra repayments without triggering break costs, and they had no offset account. After refinancing to a variable loan with a 100% offset, they parked $40,000 from a completed project in the offset account. That saved them interest on that portion of the loan while keeping the funds accessible for materials, subcontractors, or GST payments.
The Cost of Staying on Your Lender's Standard Variable Rate
When your fixed rate period ends, your loan automatically converts to your lender's standard variable rate. That rate is usually higher than the variable rates offered to new customers or borrowers who refinance. The difference can be 0.50% to 1.00% or more, depending on the lender.
If you have a loan amount of $500,000 and you're paying 0.75% more than you need to, that's roughly $3,750 a year in extra interest. Over five years, that adds up. The refinance process involves a property valuation and a full application, but for self-employed borrowers, lenders now accept a wider range of income documentation than they used to, including tax portals and business activity statements.
How Income Documentation Affects Your Refinance Application
Self-employed borrowers often worry about the refinance application process because of income verification. Lenders typically assess your income using tax returns, notices of assessment, or Business Activity Statements. If your income has dropped since you first took out your fixed loan, that can affect your borrowing capacity. If it's increased, you may have access to more equity or lower rates.
Some lenders allow self-employed borrowers to declare their income using alternative methods, particularly if you've been in business for less than two years or if your most recent financials don't reflect current earnings. If you're refinancing to access equity for an investment property, the lender will also assess the rental income from that property as part of your serviceability.
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Offset Accounts and Cash Flow Management
An offset account is a transaction account linked to your home loan. The balance in the offset reduces the amount of interest charged on your loan. If you have a $400,000 loan and $30,000 in your offset, you only pay interest on $370,000.
For self-employed borrowers with irregular income, this is one of the most useful features of a variable rate loan. You can deposit client payments, project income, or retained earnings into the offset account and reduce your interest costs without locking those funds away. When you need to pay suppliers, tax liabilities, or cover a slow month, the money is still available.
Some variable loans offer partial offsets, which only reduce your interest by a percentage of the offset balance. A 100% offset is more valuable, particularly if you regularly hold larger balances.
When Refinancing to Variable Doesn't Make Sense
If you locked in a fixed rate that's lower than current variable rates, and your fixed rate period isn't ending soon, refinancing early will trigger break costs. These costs compensate the lender for the difference between your fixed rate and the rate they can now lend at. Break costs can run into the thousands, particularly if rates have fallen since you fixed.
If your income has dropped significantly or your business structure has changed in a way that affects serviceability, you may not qualify for a lower rate. In that case, staying on your current lender's standard variable rate might be the only option until your financial position improves.
Refinancing also involves upfront costs, including valuation fees, application fees, and sometimes discharge fees from your existing lender. If the interest rate saving doesn't outweigh those costs within 12 to 24 months, it's not worth proceeding.
Releasing Equity While You Refinance
If your property has increased in value since you took out your original loan, refinancing gives you an opportunity to access equity. This is common for self-employed borrowers looking to purchase an investment property, expand their business, or consolidate other debts into the mortgage.
Lenders will typically allow you to borrow up to 80% of your property's current value without paying lenders mortgage insurance. If your property is now worth more, that 80% threshold might give you access to additional funds. The equity release happens as part of the refinance process, so you're not taking out a separate loan.
If you're consolidating business debts or personal loans into your mortgage, the interest rate will usually be lower than what you're paying on those debts, and the repayment is spread over the life of the loan. That can improve cash flow, but it also means you're paying interest on those debts for a longer period.
What the Refinance Process Looks Like
The refinance process starts with a loan review to compare your current loan against what's available. That includes looking at interest rates, loan features, and fees. Once you've chosen a lender, you'll submit a refinance application with income documentation, identification, and details about the property.
The lender will organise a property valuation to confirm the current value. If you're self-employed, they'll assess your income using your most recent tax returns or BAS statements. The approval process usually takes one to three weeks, depending on how quickly you can provide documentation and whether the lender needs additional information.
Once approved, the new lender arranges settlement, pays out your existing loan, and registers the new mortgage. You'll start making repayments to the new lender, usually within a few weeks of approval.
Switching Lenders vs Staying With Your Current Lender
You can refinance by switching to a new lender or by negotiating a lower rate with your current lender. Switching lenders gives you access to a wider range of loan products and often results in a lower rate, particularly if you're moving from a major bank to a smaller lender or non-bank.
Staying with your current lender is faster and may involve fewer upfront costs, but the rate reduction is usually smaller. Lenders tend to offer their most competitive rates to new customers, not existing ones. If you've been with the same lender for several years and haven't refinanced, you're likely paying more than you need to.
For self-employed borrowers, switching lenders also means going through a full income assessment again, which can be a barrier if your financial position has changed. If that's the case, negotiating with your current lender might be the more practical option, even if the rate reduction is modest.
If you're weighing up whether to refinance to a variable rate or stay on your current loan, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What happens when my fixed rate period ends?
Your loan automatically converts to your lender's standard variable rate, which is usually higher than rates available to new customers or those who refinance. This can cost you hundreds or thousands in extra interest each year.
Can I refinance to a variable rate if I'm self-employed?
Yes, you can refinance to a variable rate as a self-employed borrower. Lenders assess your income using tax returns, notices of assessment, or Business Activity Statements, and some accept alternative documentation if your recent financials don't reflect current earnings.
What are the main benefits of a variable rate loan for self-employed borrowers?
Variable rate loans offer offset accounts and redraw facilities that help manage irregular income. You can make extra repayments without penalty, park funds in an offset to reduce interest, and access that money when cash flow tightens.
Should I switch lenders or refinance with my current lender?
Switching lenders usually results in a lower rate because lenders offer their most competitive rates to new customers. Staying with your current lender is faster and may involve fewer costs, but the rate reduction is typically smaller.
Can I access equity when I refinance from fixed to variable?
Yes, if your property has increased in value, you can access equity as part of the refinance process. Lenders typically allow you to borrow up to 80% of your property's current value without paying lenders mortgage insurance.
