With another interest rate rise by the RBA, many of our clients are worried about what will happen when their fixed rate mortgage ends.
Will they be stuck with a much higher interest rate?
If your fixed rate term is expiring soon, it’s a good time to review your home loan and make a new game plan. It’s smart to look into reviewing your home loan at least 1 month before expiry so that you have enough time to implement necessary changes.
The end of a fixed rate term on a home loan is not a bad thing. It offers you an opportunity to review your home loan, re-assess your needs personally and financially, and look into your options.
What questions should you ask yourself when reviewing your home loan?
The first step is to think about your current loan and your personal and financial circumstances. Ask yourself the following:
- Is my home loan working for me?
- Am I using any features such as offset accounts or redraw facilities effectively?
- Has my financial or family situation changed, and could this affect the type of loan that’s right for me?
- What are my intentions for the property (hold, sell, use the equity to renovate or buy an investment property)?
The answers to these kinds of questions are beneficial in helping you decide what to do when your fixed rate term expires.
Is extending your current fixed rate term possible?
The answer is no. However, you can fix your home loan at a new rate. Most lenders offer fixed rate terms of 1 to 10 years.
Can you change the length of mortgage term?
Yes. Speak to your local mortgage broker about applying to extend or reduce your mortgage term at any time.
What happens when your fixed rate ends?
When your term expires, the fixed interest rate you were paying stops and you will move to a variable interest rate. Your Mortgage Broker may get in touch with a new offer in rates and terms. If you do nothing, your home loan will usually revert to your lender’s current variable rate.
What are some options at the end of a fixed rate home loan?
Once your fixed rate term ends, you can stay with your current lender or you could speak to a mortgage broker or bank about refinancing your home loan with a new lender.
Here’s some ideas and options you might want to consider at the end of your fixed term mortgage rate:
1. Fix your home loan again with your same lender
After the fixed rate term expires, you can choose to fix your home loan again for a new period of time. This option provides details of what exactly your repayments will be during the fixed rate term, thus you can budget accordingly. Keep in mind that there is a chance that ending your fixed rate term early may incur you additional costs – read the fine print.
2. Switch to a variable interest rate with your same Lender.
The main difference between a fixed and variable home loan is the interest rate. A variable loan interest rate could go up and down depending on the economy. A Fixed Interest rate remains the same for the agreed period of time. The advantages of a variable loan are the loan features and unlimited repayment options to help you get ahead.
3. Split your loan – partly fixed and partly variable interest rate.
This is when one portion of your loan remains fixed and the other portion is a variable interest rate.
What happens if you have a fixed home loan but you need to sell or refinance?
If, for any reason, you choose to break your fixed rate term before it expires, you may incur break costs. Depending on the loan and the lender, in our experience, 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 you do if interest rates have gone up when your fixed rate ends?
The ideal thing to do in this instance is to look for the most competitive interest rates on the market that will suit your financial needs and circumstances. Review all aspects of a loan product, not just the interest rate. See how one lender’s fee compare to others, and look for features that may save you interest.
Orchard Mortgage Brokers Sunshine Coast – We’re here to help.
With so much uncertainty around how much higher interest rates may climb, it’s natural to be concerned when your fixed rate term is coming to a close. Rest assured that we’re here to guide you every step of the way to assist you choose options that suit you and your current situation.
We can review your mortgage and offer new options.
We Provide Complimentary Appointments with the Orchard Mortgage Brokers Team
Our experienced mortgage brokers will help you find the right loan for your needs. Whether you’re looking to buy or sell, we’ll make sure you get the loan that works really well for your situation.
Licensing statements: Orchard Mortgage Brokers (Qld) Pty Ltd ACN 671 112 137 Trading As Orchard Mortgage Brokers is an authorised Credit Representative 556459 under Australian Credit Licence 389328 General disclaimer: This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply
Further Reading:
Money Smart https://moneysmart.gov.au/home-loans/choosing-a-home-loan
Sunshine Coast Mortgage Brokers – https://orchardmortgages.com.au/mortgage-brokers/home-loans/