Are you one of the millions of Australians who locked in onto an ultra-low fixed rate on your home loan or investment property loan a few years back? Are you due to mature onto a variable rate?

On the back of the heat of recent RBA interest rate hikes your loan repayment is likely to more than double when your fixed term expires.  The Australian Prudential Regulation Authority (APRA) loan book data shows approximately 38 per cent of home loans are currently fixed, in dollar terms, with the peak of people coming off their fixed rates around mid-to-late 2023. This is hitting consumers hard.

If someone with a $500,000 loan fixed in July 2021 for 2 years at a fixed rate of 1.94 per cent, which was the average of the 4 major banks at the time, they would currently be paying $2,105 in monthly repayments. This is based on someone on a package loan paying principal and interest with 25 years remaining.

When their fixed rate ends in July 2023, with a current owner occupied ‘revert’ home loan rate of 8.30 per cent variable, their monthly repayments would rise to $3,807 – an increase of $1,702 per month!

Even if they managed to renegotiate their loan to a discounted variable rate product, they would still be paying around 5.79 per cent on which monthly repayments would be $3,074. Still an increase of $969 per month.

What happens when people’s fixed rates mature?

You need to check your contract. Many fixed rate contracts with banks see the loan switch over to the bank’s ‘revert’ rate or their highest variable rate.  A number of options present at this point in time including:

• Renegotiate with your current lender onto a lower variable rate.
• Consider the current fixed rates and locking in your rate for a further term.
• Review the market and what other products are on offer including special deals. The market is dynamic and lenders are competing for your business.

Cost of living and interest rate increases – what can I do?

The time to have a discussion is now on what your options are. Don’t wait until you are under mortgage stress and have a cash flow issue.

Whilst no one has a magical wand to return rates to where they were 2 years ago, you can put in place some strategies subject to your personal goals that can assist. This may include extending the loan term back over the longest possible period, an interest only period, and debt consolidation strategies to stop paying higher interest on credit cards, personal loans, car loans, buy now pay later facilities and other debts.

Also of concern in the current climate is potential falling property prices which may send some borrowers into ‘mortgage prison’ where they are unable to refinance.

Borrowers who have purchased in the past with a small deposit could find their equity position falling below the normal 20 per cent that lenders require. This would make it costly to switch banks as they would have to pay lenders’ mortgage insurance to switch or be forced into negotiating solely with their current lender.

Ultimately the worst thing you can do ignore the issue. Seek professional advice from your mortgage broker or advisors in regards to your personal circumstances and what options are available.

It costs noting to find out what your options are.