What happens when you roll off your fixed-rate mortgage?
They say all good things come to an end, and that includes your ultra-low fixed-rate home loan period. So what can you do to ensure a smooth transition?
With the past couple of years offering historically low interest rates, many Australians have been able to lock in an ultra-low fixed-rate home loan.
In fact, in July 2021, a whopping 46% of home loans taken out that month were fixed, which the ABS says was the peak period for fixing.
That means the peak time for borrowers rolling off their fixed-rate period will be between July and December 2023, according to RBA research.
And that time is fast approaching.
A looming fixed-rate cut off date can be daunting, particularly in the face of recent interest rate hikes. But you do have a few different options available, namely the three Rs: reverting, refixing and refinancing.
If your fixed period ends and you haven’t made other arrangements, typically your loan will revert to the standard variable interest rate.
And this is set to give many home owners around the country a bit of a rude shock if they don’t start planning ahead.
In fact, RBA deputy governor Michele Bullock has warned that half of fixed-rate loans may face an increase in repayments of at least 40% when they roll straight onto a variable mortgage rate around mid-2023.
So before your fixed period ends, get in touch with us and we’ll help you explore your options. Which takes us to our next points – refixing and refinancing.
Depending on the terms and conditions of your mortgage, you may be able to refix your loan with your existing lender.
It’s worth noting though, that due to the official cash rate going up dramatically over the past few months, it’s unlikely that you’ll be put on a fixed rate similar to the one you’re currently on. But there’s always the potential for negotiation.
The usual maximum time frame for fixing a loan is five years – but you can lock in shorter periods, too. So look into the current financial climate before deciding on whether to fix, and then the term length.
All that said, other lenders might be willing to offer you a better rate – be it fixed or variable – than your current lender, which brings us to refinancing…
If your current lender doesn’t want to come to the party, refinancing your loan elsewhere could potentially score you a better deal.
Rising interest rates have brought on record levels in refinancing. In fact, more owner-occupiers refinanced in June than ever before, according to ABS data.
This means the home loan market is highly competitive right now and lenders are keen for borrowers who have a good amount of equity and are on top of repayments.
If that sounds like you, then it’s certainly worth exploring your options, which we’d be more than happy to help you do.
How to start preparing now
If you’re coming off a fixed-rate loan in the near future, there are other steps you can also take to smooth the transition.
First and foremost, start planning ahead now. That includes building up a buffer of savings to cover higher repayments each month and if things are looking tight, cutting back any unnecessary expenses.
Last but not least, get in touch with us well in advance of your fixed rate ending, so we have plenty of time to model different options for you – whether that’s reverting, refixing or refinancing.
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