My Fixed-Rate Home Loan Will Expire Soon

My Fixed-Rate Home Loan Will Expire Soon

My Fixed-Rate Home Loan Will Expire Soon: What Can I Do?

With the cash rate hitting 3.1% in December and the RBA announcing future increases on the horizon, variable home loans are set to continue on an upwards trend for the foreseeable future.

If you’ve been operating on a fixed-rate loan for the time being, then you’re likely feeling quite fortunate, given the year of inflation and hikes in interest rates. But all good things must come to an end, and no fixed-rate loan stays fixed forever.

So, if your fixed-rate loan is set to end soon, and you’re looking ahead to see significantly higher variable rates than you were expecting – just what can you do?

Plan ahead for the end of your fixed-rate term

There are actually many options available to you for when your fixed-rate term ends, and the worst thing you can do is just to let it lapse. At the end of your term, your home loan will automatically revert to a standard variable rate outlined in your contract – and that’s rarely (very rarely) the best offer.

So, what options do you have?

Talk to your mortgage broker
The standard “revert” variable rate is only a single offer, and it’s likely to be disadvantageous to you. Your mortgage broker may be able to help you with a better rate by shopping around. Even if you can’t simply move to a more advantageous rate off the bat, your mortgage broker will be able to help you explore your options and find the best outcome for your personal situation.

Refix your current loan
When your fixed-rate term ends, you have the option to re-fix. Unfortunately, you’re not able to re-fix at your current rate, but even though it may not be desirable right now, it’s worth exploring the option. If you fixed your rate initially, there’s likely a good reason, so if your personal circumstances haven’t changed greatly since you took out your loan, then fixing it again might be the right decision.

Budget for a variable-rate loan
If you no longer need a fixed rate, or if they’re not financially viable, a variable-rate loan might be right for you. Whether you end up with your revert rate or find a more competitive rate on the market, it’s likely that you’ll need to budget to make the most of the situation.

Refinance using your equity
If the new variable rates seem a little too daunting and you have equity on your property, you’ll be able to refinance to find a more forgiving repayment plan. Refinancing is taking out a new loan to pay off your old loan, and it has several key benefits. By extending the loan term, you can reduce your monthly repayments at the cost of remaining indebted for a longer period of time and paying a larger sum in the end. It’s not exactly ideal to pay off your loan quickly, but it’s especially worth considering if your revert rate is more than you can budget for.

Fixed-rate or variable-rate?

Fixed-rate loans have been an object of envy, with the cash rate shooting higher than any expert predictions. But that doesn’t mean that taking on a new fixed-rate loan is necessarily the correct decision for you. With more certainty in the loan market, fixed-rate loans are, again, a trade-off between certainty and opportunity rather than a pleasant windfall of circumstance.

It’s worth considering which type of loan works best for your situation; do you need consistency to budget around or the opportunity to pay more than the term allows? With a fixed-rate loan, you can calculate the exact repayments you’ll need to make over the next 1-5 years, but a variable-rate loan has many advantages, such as:

• Pay out the loan early, increase the loan for equity on hand or make unlimited extra repayments.
• Use an offset account to reduce interest payments with your savings.
• Refinance at any time without paying expensive break fees that you’d face in a fixed-rate loan.

When should I review my loan?

Typically, it’s recommended that you review your loan and speak to your mortgage broker any time your personal or financial circumstances change. Perhaps you have a new child on the way, or maybe you’re taking in less income? Any change in your finances could mean that a change in your home loan might be an advantage.

If you’re coming up to the end of your fixed-rate loan, then you should begin exploring options at least three months before the change. It can take time to find the right solution, plan ahead for a new rate, and manage all the paperwork to swap. Before you swap to a new rate, it’s often helpful to make as many voluntary payments as you can afford or are allowed under your current terms.

Most importantly, if you’re ever unsure about the future of your loan, experiencing some change in your financial circumstances, or hoping to improve your situation, you should speak to a mortgage broker to explore your options.