During the COVID pandemic in 2020 the Reserve Bank of Australia’s cash rate was at a record low 0.1% which saw a record number of customers lock in fixed rates for a certain amount of time. According to the Financial Review, 40% of outstanding mortgages in late 2021 were locked in with fixed rates. Of that, 75% of fixed rates will expire by the end of 2023. The current cash rate is 3.10% which means if you’re one of those customers that locked in a fixed rate years ago, your repayments will be going up. Knowing this, it’s important that you’re prepared for when this occurs.
You should review your home loan at least 3 months before expiry so you have sufficient time to implement changes if required. As a mortgage broker I can give you different options and strategies associated with a loan coming to the end of its fixed period. At the end of the fixed period there are three different situations which can occur.
Automatically Revert to Variable
When a fixed term matures, the loan will automatically revert to your current lenders standard variable rate. The first thing I will do is make a pricing request with your current lender to make sure you’re on a competitive interest rate. However, this rate can still be considerably higher than other rates on the market. Not only this, but by reverting to a variable loan you may be eligible for extra features which some lenders restrict for fixed loans i.e. offset accounts, redrew facility, uncapped additional repayments, etc. These are factors that I can assist with.
Re-Fix
Your current lender will also give you the option to re-fix your loan for a period of time usually between 1 to 5 years. It’s extremely important to review the rates on offer as you may be able to save thousands by moving to another lender which offers a cheaper rate. For example, say your current lender offers a 2 year fixed term of 5.79% but if you were to refinance you could get 5.29% with a competitor. On a $500,000 loan a 0.5% saving in interest would result in a $5,000 saving over the 2-year fixed period.
Refinance
As briefly referenced above, the final option is to refinance your loan with another lender. As your fixed period comes to an end, I review several lenders to determine who has the most competitive rate at that time and determine whether it’s in your best interest to refinance. Select lenders do refinance cashback offers ranging up to $4,000 and in some instances, I can get 1. a cheaper rate, 2. better loan features and 3. a $4,000 cashback which adding all three together results in a massive benefit for the customer.
As a mortgage broker I am always acting in your best interest and will never recommend anything that is disadvantageous for your particular situation. It’s important to not put off these discussions as it could end up costing you hundreds, if not thousands. If you would like to discuss your current loan further, please reach out on 0401 225 713 or lmckean@lbkprivatelending.com.au