How to prepare for a fixed-rate mortgage cliff
Do you have a fixed-rate mortgage contract that’s coming to an end soon? It can be a stressful time, particularly with rate rise news dominating the headlines. So today we’ve got some tips for a smooth transition.
Like many Australians, you may have taken advantage of the interest rate good times by locking in a cracking rate.
But as they say, all good things must come to an end.
Indeed, the Reserve Bank of Australia (RBA) has estimated that 800,000 fixed-rate loans will end this year.
If that includes your loan, below are some tips to help you navigate the transition to higher repayments smoothly.
Crunch the numbers
Variable interest rates have been rising in recent months. And you can expect your mortgage repayments to follow suit once your fixed-rate loan contract ends.
Do you know how much extra you may have to pay each month? And where will you find the extra cash?
Giving your budget a tidy-up now may put you in a better position to decide what loan product will suit you going forward to help you meet your repayments.
Consider cutting back on non-essentials (streaming services, takeaway coffees, alcohol, restaurants) and look for cheaper offers on your big-ticket bills like insurance and utilities.
Doing so now can also help you save up a buffer that’ll ease your transition to future higher loan repayments.
Negotiate your rate
One of the worst things you can do when rolling off a fixed-rate loan is to simply accept the variable rate your lender automatically provides.
Lenders are more likely to offer attractive rates to new customers, not their existing ones. It’s often referred to as the “loyalty tax”.
Before your fixed-rate contract ends, we can talk to your lender and let them know you’re exploring your options.
In order to keep you on board they may very well make an offer you find acceptable.
Do you want to refix?
Continued rate rises are expected in 2023 and, depending on your situation, you may wish to refix your loan.
You could also consider a split loan – where part of your loan has a variable rate, and the other part is fixed.
That said, not all lenders allow you to refix all or part of your loan.
If you want a fixed or split loan and your current lender won’t provide it, then you may want to explore your options elsewhere by refinancing.
This brings us to our next point.
Time to refinance?
If your existing lender doesn’t come up with the goods then refinancing is an option.
Refinancing may get you access to rates and features that banks use to woo new customers. And it can potentially save you thousands.
According to 2022 PEXA data, refinancers saved on average $1,524 per year. The ACCC reported in 2020 that mortgagors with 3 to 5-year-old loans paid an average 58 basis points more in interest than new lenders.
If you’re considering refinancing, you may want to act sooner rather than later. With house prices falling, it’s important to make sure you have enough equity in your home to refinance.
Talk to us
Last but not least, come and chat with us well before your fixed rate ends – not after.
We can help you crunch the numbers, negotiate a new rate, and help with refixing and/or refinancing.
Acting early means we’ll have plenty of time to explore plenty of different options for you and help you find a solution that will allow for a smooth transition.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.