If you’re one of the millions of Australians who are locked into a low fixed rate mortgage, you probably cannot relate yet to the financial woes of those who are in variable rate mortgages.
However, such immunity ends when you complete the term of your fixed rate mortgage. There had been so many interest rate hikes in 2022, and the momentum is not likely to change anytime soon. Financial markets are no longer questioning whether or not there will be another rate rise. Rather, they are now more concerned about just how much the hike is going to be.In this article we will help shed light on what happens after fixed rate mortgage ends and how to prepare yourself as you transition to a new interest rate.
FAQs on fixed rate mortgage Australia
What is a fixed rate mortgage?
A fixed rate mortgage is a home loan that has a fixed interest rate and, subsequently, fixed monthly mortgage repayments.
What does fixed rate mortgage mean?
To be in a fixed rate mortgage means you are locked in your repayments for between 1-5 years. An average home loan itself lasts 25-30 years, so you have the option to lock into a new fixed rate once your current one ends.
How does a fixed rate mortgage work?
How Australia fixed rate mortgage works is that lenders will guarantee that the interest rate you are locked in will stay in place for a set amount of time, regardless of the changes in market conditions, and whether or not the interest rate increases.
What happens at the end of a fixed rate mortgage?
Your loan facility matures and reverts back to the prevailing interest rate(a.k.a. your lender’s standard variable rate) post the fixed-rate term. Best to shop around for better deals in the market three months before your fixed rate period ends. That way, you can seamlessly transition into it with the help of your mortgage broker.
How do I get out of a fixed rate mortgage?
You can do so by switching to another lender or home loan product during the fixed rate term, or making extra repayments beyond what is stated in the contract, thereby repaying the loan earlier than expected.
What is the penalty for breaking a fixed rate mortgage?
The break fees incurred for breaking a fixed rate mortgage depends on your lender. Note that break fees can also refer to as “early exit fees” or “early repayment penalties”. The calculation for this involves the Bank Bill Swap Rate (BBSR).
What you need to know about interest rate rise Australia
For fixed rate customers, best to prepare yourself for another hit.
How many interest rate hikes in 2022 Australia?
On the subject of interest rate hikes 2022 has seen almost a handful of them, with the earliest one implemented in May this year.
As of this writing, the RBA has hiked the cash rate five times. The second one happened in June, third in July, fourth in August, and the latest one in September.
Philip Lowe, the governor of the Reserve Bank, warns that they will need to lift the official interest rate at least twice more to mitigate the effects of inflation. The pace and size of these rate hikes will be determined in part by how quickly wages pick up.
You may have locked in the lowest fixed rate mortgage possible, but we are at a level of interest rates Australia has not seen since January 2015.
How interest rate hikes will change Australia
The latest predictions show that the cash rate in Australia might climb to a peak of up to 3.35%. Inflation is possibly surging to 7% by the end of 2022 and not likely to fall until early in 2023.
So here’s our PRO TIP: How to prepare for interest rate hike? Talk to your mortgage broker
Banks and lenders will not give the best deal when you switch to a variable rate. Homeowners with a fixed rate term could be shifted to a higher than expected variable interest rate.
How can a mortgage broker help you brace for increased repayments?
As it is hard to negotiate with a bank by yourself, it is ideal to get a mortgage broker who legally must work in your best interest. We advise talking to your mortgage broker 2-3 months out from when your fixed rate is expiring. This way you can be prepared and look at possible alternatives.
Below are ways a mortgage broker can assist:
- find you the most suitable variable interest rate that is lower than your existing bank;
- get you another fixed term or loan setup that will best suit you and your personal circumstances; and
- work out a way for you to be offered potential cashbacks on the table (may come in the form of a direct deposit, a subtraction from your mortgage, or a gift card).
At North Brisbane Home Loans, you can count on our mortgage brokers to work hand in hand with you and to help you with home loan aftercare.