About 40% of outstanding mortgages in late 2021 were fixed rates. Of those, 75% are set to expire by the end of 2023. At the time, these were some of the lowest interest rates ever seen in Australia.1
Because of this, many borrowers may have to ready themselves for a significant increase in their rates and repayments once their fixed term comes to a close.
Unchecked, this could cause serious financial stress and strain on the budget, but there are steps you can take to prepare and potentially lessen the blow.
In order to prepare, the first thing you should do is look at your loan and:
Normally, once your current fixed-loan term comes to an end, the lender simply reverts the loan to their standard variable rate available at the time, which may be higher or lower than the fixed rate you’ve been on. Unfortunately, many borrowers don’t act fast enough and get caught out by an uncompetitive revert rate.
That’s why it’s important that you know when your current term ends so you have time to negotiate for better rates, or switch loans or lenders if required.
Depending on your lender and the terms of your loan, there may be room for some flexibility. For example, you may be able to increase the amount of your regular repayments until the end of your fixed term or change from monthly to fortnightly repayments. This would enable you to take advantage of the lower rate and pay off as much of your loan principal as you can before reverting to a higher rate.
Furthermore, paying off more of the principal now can help lower your loan-to-value ratio (LVR). This will put you in a more favourable position to qualify for lower rates if you decide to change loans/lenders.
A Nectar mortgage broker can explain to you all the features of your loan and show you ways to pay off your loan faster.
If you’re expecting a big increase in repayments, you could focus on saving as much as possible from now until your expiry date and then use those savings to pay off a lump sum on your mortgage before you feel the pinch of higher repayments. Doing this will also lower your loan-to-value-ratio (LVR), which can be helpful come negotiation time with your lender.
Consider your current financial situation and try to figure out how your expenses could change when you come off your fixed rate.
Start noting down your expenses. Subscriptions, grocery costs, repayments, other debts you might have, your income, your sources of income and so on. Once you’re done, take a look at what you can do without. Also, try shopping around and looking for deals for utilities like your phone, internet, etc. This will help you save more money, which can go into paying off your debts more easily in the future.
There’s nothing wrong with seeking a little help and getting some recommendations. If you’re worried about your financial situation and how you might pay your mortgage in the future, please don’t hesitate to contact us. Our expert brokers are always here to help you in any way they can. When you’re looking for top-quality brokers, look no further than Nectar.