The saying goes all good things must come to an end, and for borrowers who flocked to the property market to take advantage of record-low interest rates, that end is fast approaching.
Hundreds of billions of dollars' worth of fixed-rate home loans (including many that featured rates below 2% p.a.) are due to expire in the coming months. This will see many of these revert to variable rates that are two to three times higher than the expiring fixed rates, which may come as a rude shock to those that had grown accustomed to the lower repayments.
If you’ve got a low fixed-rate home loan that’s due to expire soon, there are a number of ways you can prepare to ensure you are ready for the loan to revert to a higher rate.
Tools to prepare for fixed rate expiry
The end of a fixed-rate home loan may not be all doom and gloom. It offers you an opportunity to not only take necessary steps to prepare yourself for what is to come, but also re-evaluate your lender, review your loan needs and assess your personal financial circumstances.
Increase repayment amount and frequency
Wealth Within Chief Analyst Dale Gillham said anyone with a loan should aim to get in front of potential interest rate rises and start paying down their loan as if the interest rate was already 7.00% p.a.
“The earlier you start, the better off you will be, as the extra payments will mean you will pay less in interest over the longer term,” Mr Gillham said.
Look to refinance
Once your fixed-rate expires, you may consider re-fixing for an additional period. If you would instead prefer more flexibility with the extra potential benefit of an offset account, you may consider opting for a variable rate home loan.
If you do decide to opt for a variable-rate home loan, it’s important to understand your home loan rate will fluctuate depending on not only the RBA cash rate, but also the general attitudes of the lender.
Kanishka Raja, Chief Product Officer of Lending at ubank, said savvy home loan customers are increasingly looking at refinancing their mortgages to help get ahead on their finance.
“Refinancing, of course, allows you to get onto a more competitive rate than you might be on and potentially save on repayments,” Mr Raja told Savings.com.au.
“It also allows you to take advantage of product features like offset accounts that make your savings go further by helping repay your home loans faster.
“Some lenders also offer pricing discounts to customers who are borrowing below 70% of the current value of their property – these discounts known as loan-to-value ratio pricing also make refinancing a lucrative option."
Unloan CEO Daniel Oertli said more Australians than ever are starting to look at refinancing to take advantage of a better home loan rate.
“Fixed rates will generally roll off onto a standard variable rate, which are beginning to become very, very high,” Mr Oertli told Savings.com.au
“That’s encouraging people rolling off fixed rates onto an otherwise high variable rate to quickly shop around to make sure they either re-fix their rate, or more commonly shopping around for a cheaper variable rate.”
Restructure your home loan
Aside from fixed and variable rate home loans, another option on the cards once your fixed rate home loan expires is to consider a split home loan. With a split rate home loan, you essentially split your home loan balance into two different accounts – one being charged a fixed interest rate and one charged a variable rate – at different portions. As an example, you might opt for a 60:40 split rate home loan, where 60% of your loan is set to a variable rate while the remaining 40% is set to a fixed rate.
Savings.com.au’s two cents
If your fixed rate is set to expire in the next few months, it’s important to consider your current financial position, re-evaluate your lender and review your home loan needs. With the number of Aussies looking to refinance to a better home loan deal growing by the day, it’s important to look for a more competitive rate now to avoid potentially becoming a mortgage prisoner in the near future.
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Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
6.04% p.a. | 6.06% p.a. | $2,408 | Principal & Interest | Variable | $0 | $530 | 90% | Featured 4.6 Star Customer Ratings |
| |||||||||
5.99% p.a. | 5.90% p.a. | $2,396 | Principal & Interest | Variable | $0 | $0 | 80% | Featured Apply In Minutes |
| |||||||||
6.09% p.a. | 6.11% p.a. | $2,421 | Principal & Interest | Variable | $0 | $250 | 60% | Featured Unlimited Redraws |
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Image by Towfiqu Barbhuiya via Unsplash
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