The Bulletin

Preparing for the End of Your Fixed Rate Home Loan

Record-low interest rates have been a fortunate circumstance for many Australians. However, this period of luck may be coming to an end for many Australians reaching the end of a 2-year fixed-rate period. As a large portion of mortgages approaches the end of their fixed term, many households will face the prospect of paying two to three times their current fixed rate.

To prepare for this change, it is important to understand what to expect when your fixed interest rate ends and how to manage higher repayments. In this article, we will discuss these topics and provide some practical tips to help you navigate this transition.

When your fixed term nears its end, you have a few options. You can re-fix your loan at a new rate, change to a variable rate, or consider switching to a new mortgage provider. If you do not take any action, your mortgage provider will generally switch your loan to its standard variable rate, which can be much higher than some of the discounted options available to new customers.

To avoid this scenario, we recommend contacting your provider at least three months before your fixed rate expires. This will give you enough time to assess your options and make any necessary changes. Here are some steps to consider:

Firstly, negotiate with your current mortgage provider to find out what variable rate you will be paying. This will help you determine whether switching to another provider is a better solution. You can also try to negotiate a better rate with your current provider.

Secondly, research what other mortgage providers are offering. This will help you determine whether you are getting a competitive interest rate. If you do find a better offer, switching providers can be a smart move. However, it is important to consider the costs involved in switching, such as borrowing costs and switching fees.

Thirdly, consider re-fixing your loan if you prefer the predictability that comes with a fixed-rate loan. However, be aware that you will be locked into the new fixed interest rate for a period of your loan term, which may result in break costs.

Fourthly, consider a split loan if you are struggling to decide between a variable or fixed rate. This approach can provide the best of both worlds, offering flexibility and certainty.

Fifthly, seek help from a mortgage expert if you are unsure which option is best for you. Mortgage experts can recommend some of the best home loan options to suit your specific needs and guide you through the switching process if necessary.

Lastly, consider making extra repayments before your fixed rate ends. By reducing your mortgage balance before your interest rate increases, you could save a lot of money on interest payments.

When your fixed mortgage rate ends and your repayments start to increase, your finances may need to be reviewed to cope with the new reality of rising interest rates. There are ways to help you save, and potentially earn more money, which may compensate for the rate increase.

We recommend reviewing your budget and looking for expenses you can cut back on. You can also consider increasing your income by asking for a salary raise or finding a higher-paying job. Alternatively, starting a side hustle, such as dog walking or online tutoring, can be a great way to make extra cash. Lastly, you can consider opening an offset account linked to your mortgage balance, which can reduce the amount of interest you pay on your mortgage.

By taking these steps and being proactive, you can be better prepared for the end of your fixed rate period and manage any potential financial changes that come with it.

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