Home loan fixed rate ending soon? Know your options
Over the past few years, many Australians locked their home loan into a fixed rate at or below 2 per cent. While that same group of Aussies were shielded from incrementally rising rates for a while; they faced an immediate mortgage hike once their fixed term ended.
We can't necessarily say whether one scenario is better than the other, but we can prepare ourselves for the future. If you're currently on a fixed rate, and about to move to a variable, here is how to prepare for a different pace of mortgage repayments.
My fixed rate is ending, what can I do?
1. Move to an agreed variable rate
Unless you agree with your bank to switch to a different loan type when your fixed rate period ends, your loan will automatically change to a variable rate.
Variable rates are...well, variable. So, it can be hard to pinpoint the exact amount you’ll pay until closer to the date your fixed rate matures.
The upside of a variable rate versus a fixed rate is that you may have greater flexibility, like the ability to make extra repayments, access to a redraw facility, or using an offset account.
If the flexibility of a variable rate suits your needs, you can also negotiate a better rate with your bank. There’s never harm in asking what more they can do for you.
2. Re-fix your home loan
If you’ve enjoyed the stability of a fixed rate, you may decide to fix your interest rate again.
You won’t pay the same fixed rate as before, but you will have the peace of mind of knowing what your repayments will be each month, which can help you plan and budget around your life without more potential rate rises.
3. Split between fixed and variable rates
Splitting your loan between fixed and variable rate components can give you the best of both worlds – the flexibility and features of a variable rate, combined with the certainty of a fixed rate. All you have to do is decide how much of your loan to fix, and how much to leave variable.
4. Refinance to a different type of loan
The end of a fixed rate can be an opportunity to switch to a different home loan. This is worth considering especially if your goals or life circumstances have changed. Do your research and find a home loan that best suits your needs.
Refinancing to a new home loan can potentially see you save with a lower rate, and benefit from flexible features to help you get more from your money – and mortgage.
If you’re thinking of switching loans, keep an eye on the comparison rate. It takes into account many of the fees you could pay with a loan, providing a more accurate picture of the true cost.
Preparing for your fixed rate to end
Planning ahead can help you manage a change in repayments. Here are some ideas to help you get started before your fixed rate reaches its full term.
Work out what your repayments could be
Try crunching the numbers on our Loan Repayments Calculator to give yourself an idea of how your repayments could change. It lets you play around with the numbers to see how your repayments may be impacted across a variety of rates and loan balances. You can also see our latest owner occupier home loan rates.
Build a buffer before you move onto a variable rate
Before your fixed rate ends, start building your savings so you can prepare for a higher interest rate, or a potentially fluctuating variable rate.
If you do move to a variable loan, an offset account can be an especially useful home loan feature for your extra savings. The more you have in the offset, the more you’ll be able to save on loan interest each month.
Another simple way to grow your offset is to have your salary deposited into the account.
Take a closer look at your spending
A change in loan repayments can disrupt the household budget. So, it’s important to review your spending to see where savings can be made.
Assess your regular outgoings and see where you can make some changes. Something as simple as cancelling a subscription service you don’t use can put some money back in your pocket each month.
Shop around for better deals on utilities or other big expenses like your car and home insurance. Go easy on payment methods like credit cards and buy now, pay later that can see you rack up additional charges.
And if you're lucky enough to move to lower repayments, consider where that surplus is best spent. Could it be put towards a family holiday, or could it help pay down your loan faster?
Need help fine-tuning your budget?
Check out our Budget Planner to see how much you can save based on your income and expenses.
Considering your options? We're here to help
We have a range of home loan options, so you can find something that suits your situation. Or if you'd like a little more help, you can find a loan specialist near you.
