What to do if your Fixed Rate Is Ending Soon

Many borrowers, either by good luck or by being decisive during 2020-21, were able to lock fixed rates in the low 2% or even in the high 1% range. According to industry data, a majority of those fixed rates will be ending in 2023 with the peak in May – July 2023.

Once your fixed loan rolls over to a variable rate a lot of those borrowers will experience an interest rate in the 5-6% p.a. range which is a big jump.

For example, if you took out a $500,000 3 year fixed rate mortgage at 2% your current principal and interest repayment will be approximately $1848 per month. This is based on a 30 year loan term.

If you roll over to a variable rate of 5.70% p.a. your repayment will increase to $2,793 per month.

That is an increase of $945 per month!

If you are worried since your fixed rate is ending and is about to roll over to a high variable rate there are some options.

A common question I hear is “What do I do when my fixed rate ends”? A jump of $945 per month in home loan repayments is going to put a hole in most people’s budgets. There are some steps you can take to minimise the impact.

The first step is don’t panic – your lender stress-tested your budget for a 3% jump in the interest rate before they approved your home loan. If you want to minimise the impact – you need to keep a clear head.

The second of these is to talk to a broker about re-pricing your loan. I recommend doing that around 6 weeks before your fixed rate is due to end. Why 6 weeks? – By starting this process 6 weeks before the fixed expiry date it gives you enough time to complete a refinance to another lender if required. You should time the settlement of the refinance to occur the day after your fixed rate ends.

There are different types of resetting to variable interest rate clauses. At some lenders, borrowers roll over to a variable rate with the minimum discount. At the time of writing, this could mean a rate of 6-7% p.a. At some other lenders, when the fixed rate ends the borrower will roll over to a pre-negotiated discounted variable rate. Regardless, a broker may be able to get you a lower variable rate with your existing lender. Mortgage World Australia is more than happy to do this for you.

If not, we might be able to refinance you once your fixed rate ends and get you a more competitive variable rate than you would have gotten otherwise – reducing your repayments.

The third step you can take is to adjust your budget now to get used to the variable rate when it resets. Go to Home Loan Repayment Calculator to calculate what your new repayment will be at the end of the fixed period. Enter your current loan limit (balance plus any redraw), remaining loan term and the current variable rate to calculate your approximate repayment.

With gaps between the current variable and fixed rates – expect that you’ll quickly max out your additional mortgage repayments for the year (which are often capped at $10,000).  So be sure to move that extra money into a savings account after that. Then, when the fixed term expires, you’ll be able to move that money into your mortgage account too.

That way you’ll have a buffer of extra cash saved up that will help reduce your mortgage or can help you if things get tight. And you’ll avoid the worst of the shock from when your mortgage resets from fixed to variable.

If you are looking for help minimising the impact of rising interest rates call 1300 661 211 or book a call and we’ll help you assess your options.

Patrick O'Brien

Patrick is a Director and a Home Loan Specialist. He has been helping Australians with home loans since 2001. Prior to working as a mortgage broker Patrick was employed by Macquarie Bank for 3 years and also worked as an accountant for a publicly listed company. Patrick’s qualifications include:

Bachelor of Business, UTS Sydney. Majored in accounting and sub-majored in Finance and Marketing.
Diploma of Finance and Mortgage Broking Management FNS50310
Certificate IV in Financial Services (Finance/Mortgage Broking) FNS40804