If you fixed your rate before the RBA started lifting the official cash rate, you’re in luck. But with home loan interest rates on the rise, this relief may be cut short if you don’t do anything at the end of your term.
With the cash rate reaching 2.35%, you may feel your palms sweating as your fixed-rate mortgage nears its end. To plan and protect your home, let’s look at what you can do at the end of your fixed-rate home loan.
What happens when you reach the end of a fixed home loan?
Unless you act on it, your fixed-rate mortgage automatically reverts to your lender’s standard variable rate when your term expires. The hard truth is that the standard variable rate is usually higher than the variable rates lenders charge new customers to attract them.
With the recent cash rate hike, your lender’s standard variable rate can be higher than expected. This means brace yourself for the pinch of higher repayments and possible mortgage stress. But you deserve a choice, so here are 5 things you can do when your term ends:
- Stay on the revert rate: As weird as it sounds, you can do nothing when your fixed rate ends. It’s no secret that fixed rates tend to be higher. But if you prefer flexibility, and you’re comfortable with fluctuating monthly repayments, you can choose to do nothing when your term expires.
But if you let it be, you move to the revert rate, and your lender may sneakily take advantage of this and charge you higher with loyalty tax. So, you miss out on competitive deals and pay more on your loan.
- Refix your home loan: You may not refix to your current interest rate, but if you refix your mortgage, you can lock your rate again for an agreed period. Usually, fixed-rate loans range from 1 to 5 years, but some offer up to 10 years. Some lenders may not allow this option, so talk with your lender first.
|Australia’s Big 4 Fixed Rates (2 years)|
|Bank||Fixed rate||Comparison rate|
*Terms, conditions and LVR restrictions apply.
Many things have changed since you fixed your loan, so you can expect the new fixed rate to be higher, especially with the cash rate hitting 2.35% this September 2022. But it guarantees security and peace of mind as it will not be affected if the RBA decides to make more hikes.
- Switch to a variable rate: Variable-rate loans typically have lower interest rates. So, if you want to change your loan, switch to a lower variable rate compared to your revert rate. Before doing so, talk with your lender about the possible costs of changing your loan to know what you’re getting yourself into.
To give you an idea, here are the big 4 banks’ current lowest variable rates:
|Australia’s Big 4 Variable Rates|
|Bank||Variable rate||Comparison rate|
*Terms, conditions and LVR restrictions apply
- Refinance to another lender: If you’re unsatisfied with your current lender’s service, offers or rates, you can also switch to a different lender. But make sure that the new lender matches your goals and offers more competitive deals. This way, refinancing is rewarding!
Remember that you should meet the new lender’s requirements and that refinancing may include costs. So, it’s best to evaluate your situation and compare lenders to save more with refinancing.
To loan with confidence, you can book a free consultation with our expert brokers. Enjoy a hassle-free home loan, and get to choose the best options from the top 40+ banks and lenders to suit your lifestyle.
- Break your fixed rate: If you don’t want to wait until your term ends, you may also break your fixed rate. It makes sense to break your fixed term before the interest rate goes higher. But remember that this may involve break costs when you pay off your mortgage early, make extra repayments beyond the cap or refinance.
Different lenders have different rules, and break costs may cost you up to thousands. So, it’s best to talk with your lender and request a break-cost quote to weigh if it’s worth the risk.
Is it better to get a fixed or variable home loan?
Deciding between a fixed rate and a variable rate depends on your goals and situation. If you want certainty with your repayments, you can choose a fixed rate. But if you prefer flexibility, a variable rate may be the one for you.
A fixed rate tends to have a high rate, but it does offer security:
- Fixed repayments for the term
- Peace of mind
- Easier budgeting
On the other hand, a variable rate fluctuates based on the cash rate and lenders’ interest rates, but it offers flexibility:
- Additional repayments
- Easier to refinance
- Various loan features
If you want to get the best of both worlds, you can also choose to split a portion of your loan to a fixed rate and the other to a variable rate. You don’t even have to split the loan 50:50 – you can negotiate with your lender!
Can you extend the mortgage term during the fixed rate?
Technically, you can’t extend your fixed-rate term with the same rate you first got. But hear me out – what you can do is refix your home loan. The rate may be higher, but if you want to feel secure with your repayments, you can consider this option.
What should you consider when reviewing your home loan?
There are many things to consider when assessing your mortgage, but some of them include:
- Your loan: First, review your rate, term, repayments and features. This will give you a bird’s eye view of what you need to work on.
- Your situation: Assess if your current loan is still in line with your situation. This way, you get to control your loan instead of the other way around.
- The market: The market highly affects your loan and finance in many ways. Understanding the interest rates and the housing market can help you decide what your best loan options are.
Need help choosing the right option?
No need to be alone and confused about what you should do next. Get in touch with our trusted brokers to get the expert help you need. We will assess your situation, negotiate with your lender and guide you to the best option that will help you save thousands on your loan.