My fixed rate mortgage is coming to an end. The rates are insane right now; what can I do?
If you’re feeling the pressure of the successive cash rates thus far, you’re not alone. And for those with fixed rate mortgages that are about to end, there is mounting anxiety over the inevitable transition to a new rate.
Homeowners who locked in fixed interest rates back when they were at their historic lows are spared from the initial blow of the early cash rate increases. But a vast majority now is worried about what happens at end of fixed rate mortgage, and many are encouraged into taking swift, decisive action.
As of this writing, the cash rate has gone up to 4.1%, which is a far cry from April 2022’s 0.10%. This means that people now have mortgage rates that are more than twice as high as their old one!
What can you do when you roll off your fixed term loan rate? Let’s explore your options and see how you can navigate this tricky situation. Times are tough; planning in advance is critical!
What is a fixed rate?
A fixed rate is a type of interest rate that remains the same for a predetermined period, typically ranging from one to five years, depending on the mortgage term. This means that the interest rate on a fixed rate loan will not fluctuate in response to changes in the market interest rates during the fixed term period.
For example, if you have a fixed rate mortgage, the interest rate will stay the same for the fixed term, even if the Reserve Bank of Australia (RBA) increases the cash rate during that period. Fixed rates offer stability and certainty to borrowers, which is why they are a popular choice for those who want to know exactly what their repayments will be over a fixed period.
Breaking a fixed home loan: what can go wrong?
Picture this: you’re not happy with your current fixed rate, and are confident you can find a better deal elsewhere. You want to break your existing home loan with your lender so you can make the switch. But not so fast!
If you break your fixed rate mortgage prematurely, you may be required to pay break fees to your lender. The amount of the break fee will depend on a range of factors, including how much time is left on your fixed term, how much you owe, and the current market interest rates.
In general, the earlier you break your fixed rate term, the higher the break fee will be.
Breaking a fixed rate mortgage can also result in you having to pay a higher interest rate if you refinance your loan with a new lender. This is because fixed rates are usually lower than variable rates. Breaking your fixed home loan and switching to a variable rate loan might have you end up paying a higher interest rate.
6 Things you can do when your fixed mortgage term ends
1. Refinance your home loan
When your fixed rate ends, you may consider refinancing your home loan to secure a better interest rate or more favorable loan terms. Whether you opt for a variable or fixed home loan, you must compare different lenders and their offers before making a decision.
2. Revert rate (standard variable)
After your fixed rate term ends, your loan may revert to a variable interest rate. This can be a good option if the revert rate is lower than the fixed rate you had. However, given the successive cash rate hikes as of late (currently sitting at 3.6% as of this writing), it’s important to keep an eye on not just the cash rate but the real estate market as a whole.
3. Lock in a new fixed rate mortgage
Should I lock in my interest rate Australia? Yes, you can do so as a good alternative to getting a revert rate. This can provide certainty and stability for your mortgage repayments. More importantly, this will help you protect yourself in case the cash rate goes further up and variable rates continue to soar.
4. Examine your current financial health
When your fixed rate ends, it’s a good time to review your overall financial health and make any necessary adjustments to your budget or savings plan. Keep tabs on your cash flow and the things you put your money towards regularly.
5. Augment your income
Increasing your income through a side hustle or asking for a raise can help you better manage mortgage repayments after your fixed rate term ends. That talk with your manager might long be overdue!
6. Reduce your overall spending
Cutting back on discretionary spending or reducing expenses such as utilities or subscriptions can free up money to put towards your mortgage monthly repayments.
Consult with the North Brisbane mortgage brokers at NBHL
Don’t get trapped in a mortgage prison or stare helplessly at the edge of your mortgage cliff! At North Brisbane Home Loans, we can provide valuable guidance and help you find a home loan deal that makes sense in this tough market.
We can help you refinance your home loan, lock in a new fixed rate mortgage, and examine your overall financial health to get a better visual on what your viable options are. Contact North Brisbane Home Loans today to get started.
Patrick Cranshaw, a Certified Mortgage Professional for over 21 years, founded North Brisbane Home Loans in 2002. His career began with ANZ Bank in New Zealand, where he progressed over 16 years to a Business Banking role in Virginia. After moving to Brisbane in 2000, Patrick led the QLD market for a home loan agency, helped set up the REMAX Real Estate Finance division, and practiced as a broker.
