Hundreds of thousands of Australians will see their fixed rate loans expire before the end of 2023.
Many of these borrowers locked in nice cheap rates during 2021 and have been protected from the Reserve Bank of Australia’s 10 successive interest rate rises since.
But the party is about to end.
Homeowners enjoying fixed interest rates below 2% are in for a shock when their loans revert to their lender’s variable rate.
Many of these will be well in excess of 3% more than the rate they are currently enjoying.
A jump from 2% to 5% on the average Australian home loan of $600,000 over 25 years would increase monthly repayments by $965.
In addition, borrowers on fixed loans often revert to a rate higher than the standard variable rate.
It presents a nasty conundrum for anyone approaching what is called the ‘fixed-rate cliff’.
That is when the interest rate of a mortgage is repriced at a significantly higher rate.
But you can take action to soften the blow.
Preparing for the rate rise
You know it’s coming so that’s a good thing.
It gives you time to make changes that will make the adjustment more bearable.
Here’s what you should be considering:
Check your budget – draw up a list of all your income and expenditure and try to make some tough decisions about where you can save money.
Maybe cut back on eating out or cancel the gym membership and work out at home. You should also check your phone and utilities bills to make sure you are getting the best possible deals.
Make extra repayments – get ahead of the curve by paying off more of your loan while you can.
Most fixed rate loans come with certain caps on additional repayments but some may allow an extra $10,000 per year to be paid off.
Increase your income – if you need more money coming in, it might be time to ask the boss for a raise which is not unreasonable considering inflation is running at 7%.
If that fails, maybe it’s time to think about changing jobs within your field to earn more money. Perhaps you could even consider moonlighting to pull in some extra dollars.
Refinance your loan
The really smart move to minimise your mortgage pain is to refinance your loan, if you can.
Thousands of Australians are already doing it!
Australian Banking Association data shows that more than 308,000 Australian loans were refinanced in the six months to March 2023.
And nearly 70% of those switched lenders to find a better deal – up from only 39% just three years ago.
The conviction of mortgage holders to change lenders has made the loan market more competitive than ever before and has put the banks on notice.
It’s forced them to work harder to keep customers, including even offering similar rates to existing customers as new ones.
But be warned – you should start planning to refinance at least one month before your fixed-rate loan expires.
Engaging a mortgage broker
The very best lever you can pull as you face the expiry of your fixed rate loan is to talk with a mortgage broker.
There’s a lot to consider when you make the decision to refinance. And it’s not just as simple as finding the cheapest interest rate.
You’ll need to factor in all the fees and charges into your calculations as well.
Mortgage brokers deal with a wide range of banks and other lenders that all offer a vast range of products.
They can off find you the best deal on offer for your particular circumstances.
And if you’ve made the decision to refinance, it’s a good idea to reconsider exactly what features you need from a home loan such as:
- extra repayments
- an offset account
- A redraw facility
- A split rate utilising both fixed and variable rates
- Home loan portability
Find out what to do about your fixed rate expiry
Calder Finance Broking are specialists in the mortgage broking business, and in just a few minutes can recommend the best way forward for your needs.
We have built great relationships with a range of lending institutions that allow us to broker the very best loan deals for our clients.
At Calder Finance, saving you money with a minimum of stress and fuss is what we do best.
We can also advise you on the most prudent mortgage strategies for your circumstance and pride ourselves on leading our clients into the future with structure, financial stability and confidence.
Contact us today to discuss all of your finance needs and concerns.
The information contained on this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Calder Wealth Management’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Calder specialises in wealth management with a focus on advice, investment, sustainability, insurance and finance.
Written by Hayley Walsh from Calder Finance Broking, for more information please visit the Calder Finance website. Please note that Calder Finance Broking Pty Ltd is a Corporate Credit Representative of BLSSA Pty Ltd ABN 69 117 651 760 ACL 391237.