What should I do when my fixed rate expires?

If you’re currently playing the waiting game wondering what will happen when your fixed rate term ends, we understand what a stressful time it might be.

Fixed rate borrowers have been temporarily shielded from the Reserve Bank’s cash rate increases, but for how long?

It’s estimated that almost 40 per cent of Aussies on low fixed rate loans will roll off them next year. This could result in a considerable increase in mortgage repayments for households that are already stretched with rising cost-of-living pressures.

If your fixed rate is expiring soon, now is the time to review your home loan and make a game plan.

Questions to ask when reviewing your home loan

As a first step, think about your current loan, your personal circumstances and goals.

• Is your loan working for you? • Are you using any features such as offset accounts or redraw facilities effectively? • Has your financial or family situation changed, and could this affect the type of loan that’s right for you? • What are your intentions for the property (hold, sell, use the equity to renovate or buy an investment property)?

The answers to these kinds of questions may ultimately drive what you decide to do when your fixed rate expires.

What happens when my fixed rate ends?

Your lender will likely get in touch with a new offer to re-fix your loan closer to when the loan term ends. If you do nothing, your home loan will usually revert to your lender’s variable rate.

What are my options?

Once your fixed term ends, you can stay with your current lender or refinance to a new one. You could:

1. Re-fix your home loan. With this option, you’ll know exactly what your repayments will be during the fixed term and can budget accordingly. However, you may be up for break costs if you end your fixed term early.

2. Switch to variable. Variable rates may be lower than the proposed new fixed rates and there may be advantages such as loan features and unlimited repayment options to help you get ahead. But if the cash rate increases, your interest rate may rise too.

3. Split your loan. This is when a portion of your loan is fixed and the remainder is variable, potentially allowing you to benefit from both loan types.

Can I extend my current fixed rate mortgage?

Unfortunately not. However, you can fix your home loan at a new rate. Most lenders offer fixed terms of 1 to 5 years.

What if I re-fix then need to sell or refinance?

If you do fix your interest rate and need to sell or refinance, you may have to pay break fees to the lender.

Break costs can be expensive. The amount you’ll be up for depends on a range of factors, including the lender, the loan amount and the time left on the fixed term.

Usually, there are no penalties associated with refinancing from a variable rate.

What can I do if interest rates have gone up when my fixed rate ends?

The most important thing is to shop around to ensure you find a competitive loan that suits your financial circumstances and goals.

Consider all aspects of a loan product – not just the interest rate. What features can save you interest? How does one lender’s fees compare to others?

Remember, you may be able to find a more suitable loan with another lender.

We’re here to help

With so much uncertainty around how much higher interest rates may climb, you have every right to be concerned. Rest assured we’re here to help you through this difficult time.

We can review your mortgage and explain whether it still meets your needs. Get in touch today.