Making the Move: From Fixed to Variable Rate Mortgages

Making the Move: From Fixed to Variable Rate Mortgages

Fixed to Variable Rate Mortgages

The world of mortgages can be confusing, especially when interest rates are changing. Recently, the Reserve Bank of Australia’s (RBA) Governor Phillip Lowe spoke about the “fixed-rate cliff.” The fixed-rate cliff refers to the situation where a large number of borrowers who locked into low fixed-interest rates during the COVID-19 pandemic come off those rates and onto higher variable rates at the same time. This can cause a sudden increase in mortgage repayments for borrowers, which can put some of them under financial stress.

The RBA has been monitoring the fixed-rate cliff closely, and Lowe said that the peak of the cliff had been surpassed in August 2023. However, he also said that another 1 million borrowers are yet to transition from their fixed-rate loans to variable loans. These borrowers will face higher mortgage repayments in the coming months and years. Lowe said that the RBA expects most borrowers to be able to manage the transition to higher interest rates. However, he warned that some borrowers may be vulnerable, particularly those with high debt levels or low incomes.

But what does that mean for you? Imagine you’re on a fixed-rate mortgage. You’ve locked in a low interest rate for a set period, and you know exactly what your repayments will be. It’s like standing on a solid cliff, safe and secure. But what happens when that period ends? You might find yourself at the edge of a cliff, facing a jump into the unknown. That’s where the term “fixed-rate cliff” comes from.
A variable rate mortgage means your interest rate might go up or down, depending on the market. It’s a bit more unpredictable, but it can offer more flexibility. If interest rates fall, you could end up paying less. But if they rise, your repayments could increase.

Here’s where a mortgage broker can help. They’re like a guide who can help you make that jump safely. If you’re thinking about moving from a fixed to a variable rate mortgage, a broker can help you find the best deal. They’ll look at your financial situation, your goals, and your comfort level with risk. They’ll then search the market for a mortgage that fits you perfectly.

So, if you’re nearing the end of your fixed-rate period, don’t panic. Talk to a mortgage broker. They can help you understand your options and find a variable rate mortgage that suits your needs. They’ll explain the process, the potential costs, and the benefits of making the move. Variable rate mortgages often come with features like the ability to make extra repayments or access a redraw facility. These can give you more control over your loan and help you pay it off faster.

Remember, the mortgage world might seem complex, but with the right help, you can navigate it with confidence. Whether you’re looking to save money, gain flexibility, or align your mortgage with your long-term financial goals, transitioning from a fixed to a variable rate mortgage could be the right move for you.