Escape the Rate Hike Trap: Unveiling the True Cost After Your Fixed Rate Ends
Takes only 4 minutes
21 Jul, 2023
Updated: 08 Aug, 2024
The fixed-rate cliff is here. Most fixed-rate home loan terms will end between June and September 2023. Many people got a low fixed rate for two years when the cash rate was at its emergency low of 0.10% between November 2020 and April 2022. Now those terms are near their end. The RBA estimates that 800,000 loans, estimated to be worth around $350 billion, will roll off this year. For borrowers on low fixed rates, the revert rates could be more than double what they are paying.
How Much Will You Pay Now That Your Fixed Rate Has Ended?
If a borrower does not take action and accepts the lender’s revert rate, here’s how high their repayments will be:
| Loan Amount | Monthly Repayment After The Loan Reverts To A Variable Rate Of 7% (Approximate) |
|---|---|
| $500,000 | $3,534 |
| $600,000 | $4,241 |
| $700,000 | $4,947 |
| $800,000 | $5,654 |
| $900,000 | $6,361 |
| $1 million | $7,068 |
(The calculations are based on a 25-year loan term.) You don’t have to settle for a high revert rate. Let’s look at how you can get a better interest rate once your fixed-rate period ends.
How To Get A Lower Rate After Fixed-Rate Ends
If you make a smart move and refinance to a lower interest rate, you could potentially save $136,000 or more over the life of the loan. We did the calculations to show you how much you’d save under different loan amounts:
| Loan Amount | Monthly Repayment with 7% revert rate | Monthly repayment if you refinance at a 5.53% variable rate | Difference | Savings |
|---|---|---|---|---|
| $500,000 | $3,534 | $3,079.00 | $455.00 | $136,500.00 |
| $600,000 | $4,241 | $3,695.00 | $546.00 | $163,800.00 |
| $700,000 | $4,947 | $4,311.00 | $636.00 | $190,800.00 |
| $800,000 | $5,654 | $4,927.00 | $727.00 | $218,100.00 |
| $900,000 | $6,361 | $5,543.00 | $818.00 | $245,400.00 |
| $1 million | $7,068 | $6,159.00 | $909.00 | $272,700.00 |
How We’ve Helped Clients Past The Mortgage Cliff
It’s no surprise that many borrowers are staring down from the mortgage cliff. But we can help. Here are examples of three ways we’ve helped clients get a better interest rate: refixing, getting a lower variable rate from your lender, and refinancing to a lower rate.
1. Refixing To A Lower Rate
Sally had a home loan of $1 million, which was initially fixed at an interest rate of 4.94%. She decided to refix her loan for a period of two years with the same lender. During that time, the lender was offering the following interest rates for different fixed terms:
| Product | Interest Rate (P&I) |
|---|---|
| 1-Year Fixed | 6.29% |
| 2-Year Fixed | 6.09% |
| 3-Year Fixed | 6.49% |
| 4-Year Fixed | 6.49% |
| 5-Year Fixed | 6.59% |
If Sally had just refixed with her lender at 6.09%, her monthly repayments would be $6,078. Our post-settlement expert requested a rate review on the 2-year fixed product and managed to negotiate an additional discount, resulting in a final rate offer of 5.94%., with a monthly repayment of $5,986. After finalising the refix, the loan structure became as follows:
| Loan Product | Loan Balance | Interest Rate | Monthly Repayment Amount | Fixed Expiry Date |
|---|---|---|---|---|
| 2-year fixed | $979,000 | 5.94 | $5,986 | July 2025 |
2. A Lower Variable Rate From Your Lender
A couple had obtained a $580,000 loan with a fixed interest rate of 2.29%. However, their fixed rate was scheduled to expire in the middle of May 2023. Considering the available refixed mortgage rates, the following options were presented:
| Product | Interest Rate (P&I) |
|---|---|
| 1-Year Fixed | 5.49% |
| 2-Year Fixed | 5.69% |
| 3-Year Fixed | 5.89% |
| 4-Year Fixed | 6.49% |
| 5-Year Fixed | 6.59% |
Since the fixed rates at that time were relatively high, the couple decided to opt for a lower variable rate. The revert variable rate was 5.89% with a monthly repayment of $3,528. As the couple did not want to refix, our post-settlement expert conducted a pricing review and secured a variable interest rate of 5.54% with a monthly repayment of $3,401.
3. Refinancing
Harry had a loan of $579,178, with a fixed interest rate of 2.29%. However, the lender’s revert rate, which is set to take effect at the end of July 2023, is 5.89%. Upon contacting Harry, he expressed his interest in securing cash back and obtaining the lowest possible interest rate. Fortunately, we managed to find a lender offering an interest rate of 5.53%, along with a cashback amount of $4,288. Currently, the client is awaiting conditional approval from the lender.
Get A Better Rate
Working with an experienced mortgage broker, like those at Home Loan Experts, can help you navigate your fixed-rate ending. At Home Loan Experts, our dedicated team will support you throughout the entire process, ensuring that you secure the most favourable interest rates that align with your specific financial circumstances. Call us on 1300 889 743 or enquire online for free today.
