The Reserve Bank of Australia (RBA) says that two-thirds of outstanding fixed-rate home loans are expiring in 2023. This suggests that many borrowers will need to make decisions regarding their home loans in the next few months.
What Happens When My Fixed-Rate Term Ends?
Banks can start charging you more in different ways when your fixed rate expires. You may not even realise that you’re paying more than necessary.
- If you decide not to refix your loan, banks usually give you a revert rate, which is typically higher than the fixed rate you were paying.
- If you refix, you may not get the special offers the bank gives out to new fixed-rate borrowers.
- If you choose to refinance, you can potentially get a better deal by shopping around for a lower interest rate.
Your lender will usually inform you in advance about the end of your fixed-rate term and any necessary changes to your repayment schedule. This is the time to review your options and look for a better deal with the help of an expert. Making an informed decision is crucial, to ensure that your next move is a wise one.
How Will My Repayments Increase Once My Fixed-Term Ends?
This table compares repayment amounts for fixed-rate loans with various terms between December 2021 and March 2023. The fixed rates used for December 2021 were obtained from RateCity, while the current rates are taken from Home Loan Experts’ lowest available fixed rates as of 16 March 2023. It should be noted that the rates in the table are intended for owner-occupiers who pay their principal and interest monthly and have a loan term of 30 years.
| Dec 2021 | March 2023 | Difference | Difference in repayment on $500,000 home loan | |
|---|---|---|---|---|
| 1 year fixed | 2.38% | 5.39% | +3.01% | $860 |
| 2 years fixed | 2.45% | 5.49% | +3.04% | $873 |
| 3 years fixed | 2.87% | 5.44% | +2.57% | $747 |
Thousands of borrowers will face a massive hike in monthly repayments when their fixed rates expire this year. It is important to note that interest rates are predicted to rise again and borrowers may face even higher rates when they refix or move onto a variable rate. As a result, their repayment amounts may increase beyond the figures mentioned in the table.
The figures above were calculated using Home Loan Experts’ Home Loan Repayment calculator. You can use it to calculate your monthly repayments with different loan sizes, interest rates, loan terms and repayment options.
How To Get The Best Deal When Your Fixed-Rate Term Expires
When your fixed term ends, you can look for a few options:
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- Refixing your interest rate for another term
- Refinancing
- Switching to the lender’s standard variable rate, which may not be as competitive
- Setting up a split-rate loan to benefit from both fixed and variable loan options.
We can save you money and help you find the best deal for each of the options mentioned above.
Refixing A Loan
This means that you will be committing to a new fixed-rate term. Debra, our client, who had a fixed-rate loan, was coming to the end of her term. As part of our routine follow-up, we sent her an email that listed options she could choose when her fixed period ended. She chose to refix her loan for one year. The rate her bank initially offered her was 2.64%. But, after we did a rate review, we got an additional discount of 0.10 percentage points. So the final rate came to 2.54%. This saved her thousands in a year.
However, it’s important to remember that the interest rate you’re offered may not be as competitive.
Is It A Good Idea To Refix The Loan When Interest Rates Are On The Rise?
By refixing your loan during a period of rising rates, you could be setting yourself up for higher repayments. So it’s important to seek the advice of a mortgage broker who can help you navigate your options and determine whether fixing your loan or exploring other options is the best decision for you.
Can I Fix My Home Loan At The Same Rate It Was Fixed Earlier?
No. You can fix your home loan again but the rates will be different. Lenders will revert you to a variable rate that is higher than the rates you were paying.
Refinancing
This means changing your existing home loan to a new one that offers better interest rates or features. To determine if refinancing is right for you, you should look for a home loan that provides better value than your current one, with lower interest rates, fees or more features. However, it’s important to evaluate the overall cost-benefit of switching lenders as there may be exit fees and other expenses involved.
To ensure you make the right decisions, it’s important to weigh the benefits of lower interest rates versus cashback offers. Additionally, it’s crucial to avoid putting yourself in a situation where declining property prices leave you with insufficient equity to refinance.
To navigate these considerations and explore the options available, trust the expert guidance of Home Loan Experts’ specialist mortgage brokers. Contact us today at 1300 889 743 or fill in our free online assessment form.
Getting A Variable Rate
When your fixed-rate term expires, you may be automatically switched to your lender’s standard variable rate (SVR). This rate can be higher than the fixed rate you were previously paying and may not be as competitive as other lenders’ rates. However, the benefit of switching to an SVR is that you may have more flexibility with your repayments, unlike the fixed-rate loan. However, you may also get lower rates if you can negotiate with your lender.
Splitting A Loan
This option involves splitting your home loan into two separate portions, one with a fixed interest rate and the other with a variable. This type of loan option is preferable for those who want to have the stability of a fixed-rate loan but at the same time want to take advantage of the flexibility and any potential decreases in the variable interest rate. You can choose how much of your loan is fixed and how much is variable, depending on your needs and preferences.
Additional Tips
Negotiate With Your Lender For A Better Rate
Failing to take action when your fixed term ends could result in paying higher interest rates. For instance, if you recently finished a five-year fixed-rate period on a $500,000 home loan with a 5.05% rate and a 30-year term, and your bank is charging you 4.84% with no additional benefits, while the current lowest market rate is 4.34%, you could end up paying up to $39,307 more over the remaining 25 years of the loan term.
To avoid being overcharged, it’s crucial to request pricing information and compare deals with other lenders. Home Loan Experts can assist you with both of these to ensure you get the best possible deal.
Consider An Offset Account
Fixed-rate home loans typically don’t offer offset accounts, but if you plan to switch to a variable or split-rate loan, or if you’re considering refinancing, it’s worth exploring this option. By linking your loan account to an offset account, you’ll only be charged interest on the difference between your total loan balance and the balance in your offset account. For instance, if you have $80,000 in your offset account and a loan balance of $400,000, you’ll pay interest on only $320,000 of your loan balance.
Speak To A Mortgage Broker
Don’t limit yourself to your current lender – exploring the market for a better deal is always worth it. It’s better to talk to a mortgage broker within three months before your fixed-rate term ends. This way, you will have enough time to consult, explore different loan options and apply for the best one.
Making decisions can be overwhelming and it’s not uncommon for clients to feel hesitant about talking to a broker but it’s the best approach they can take, no matter which option they decide to choose post-fix expiry.
Choose The Right Option For You
After consulting with an expert and weighing your options, you will be more confident in selecting the best loan for your needs. It’s not recommended to fix your home loan if:
- You’re going to sell your property.
- You want to make large amounts of extra repayments.
- You’re planning on refinancing your home loan.
- You want to renovate or build a new home, in which case you’ll likely have to refinance.
Please refer to our Should I fix My Home Loan? guide for more information.
How Is Home Loan Experts Helping Its Clients?
Since November 2022, we have helped more than 120 clients make decisions about their expiring fixed-rate term. Our team of experts uses the following process:
- Clients are contacted two months prior to their fixed-rate expiry date.
- Clients are educated on their options for taking a variable rate, refixing or refinance.
- Clients are encouraged to consider refinancing first and exploring competitive rates from other lenders, as opposed to staying limited to the rates their current lender offers.
- If clients decide on a variable rate, the post-settlement team negotiates the best rates from their current lender.
- If clients decide on refixing, the post-settlement team assists with the fixing process and educates them on the product and its features.
Reach out if you need help!
It’s important to remember that there are no universally good or bad options – the right one for you depends on your goals and situation. Let Home Loan Experts guide you through the decision-making process and find the perfect solution tailored to your needs. So why wait? Call us on 1300 889 743 or fill in our free online assessment form today!