As a reaction to the COVID-19 pandemic, in 2020 the Reserve Bank of Australia (RBA) decided to slash the national cash rate right down to 0.10%1. This provided many Australians with the chance to lock in a record-low fixed rate on their home loan.
With around 880,000 fixed-rate home loans set to lapse this year after the cash rate has surged up to 3.60%, a large group of mortgage holders will be faced with a sudden increase in their minimum monthly repayments2 when their loan rolls over to a significantly higher variable rate.
While this presents a challenge for a large number of Australian homeowners, there are things that borrowers can do to prepare as their expiry period looms. So if your fixed rate is set to expire, what are your options?
Once the fixed rate period of your home loan ends, your lender will automatically revert you to their standard variable rate. This may not be the best rate they offer, so it's worth contacting your lender to find out if they have a better offer available.
If they aren't able to provide a more competitive lower rate, you should consider shopping around to find out what different lenders are offering. Some may include discounts or benefits such as cashback details as an incentive for refinancers.
If shopping for home loans and filling out documents isn’t your favourite thing, speaking to a Doorsteps Finance broker can be a great idea to streamline the process. Generally speaking, a mortgage broker will often take care of most of the paperwork, and compare a variety of loans and lenders for you.
If you prefer to know exactly how much you'll need to pay each month, it may be worth looking at getting another fixed-rate loan. Not all lenders allow you to do this, however, so you may need to switch to a different lender. Keep in mind that since interest rates have increased dramatically, the fixed-rate options may be significantly higher this time around.
If you do decide to go for another fixed-rate loan, make sure it has all of the features you need. This might include the ability to make extra repayments without fees, an offset account, and a redraw facility. Also, consider the break costs you may have to pay if you sell your property or refinance during the fixed term.
Remember that while fixed-rate loans can protect you from increasing variable rates, you could end up paying more interest than necessary. Plus, if the RBA lowers the cash rate at any point, you won't be able to take advantage of it if you're still on a fixed rate.
If you know your fixed-rate loan is set to expire, it may be worthwhile to take action now to avoid paying more later. It's best to start researching your options around two months before your fixed rate period ends3. This will allow you enough time to do some research instead of letting your fixed loan automatically switch to a variable rate and sticking with your current lender. For those with fixed loans expiring mid-year, consider whether now is a good opportunity to consider your options.
Speaking to a Doorsteps Finance broker may help you to understand whether refinancing is suitable for you. Not only do they keep up to date on the home loan landscape, but they also take your personal situation into account to help you find the best product for your needs.
2. Reserve Bank of Australia, ‘ Fixed-rate Housing Loans: Monetary Policy Transmission and Financial Stability Risks’, 16 March 2023
3. AFR, ‘10 ways to soften fall off $400b fixed rate cliff’, March 3 2023
Doorsteps Finance Pty Ltd ACN 648 541 879 (Doorsteps Finance) is a credit representative (no. 531036) of Doorsteps Solutions Pty Ltd ACN 654 334 246 , the holder of Australian Credit Licence 537369 (Doorsteps Solutions)
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Disclaimer: Doorsteps Finance Pty Ltd ACN 648 541 879 (credit representative no.531036) is authorised under Doorsteps Solutions Pty Ltd ACN 654 334 246, Australian Credit Licence 537369. Any credit application made through Doorsteps Finance Pty Ltd is subject to approval, terms and conditions, fees and charges.