Don’t get stung by a high revert rate: Mozo research reveals fixed home loan trap
Fixed rate home loans can be an enticing option for borrowers. They provide security against rate hikes and certainty about fitting monthly repayments into the family budget. But some borrowers may be unprepared for the potentially high revert rates that await them at the end of their fixed term.
Fixed rate home loans usually come with a fixed term from one to five years long, or on some options, as long as seven or even ten years. While the rate is locked in for this period, it then reverts back to a variable rate option. These revert rates automatically kick in unless you negotiate an alternative with your lender, and they can make a huge difference to your monthly repayments.
If this is all news to you, you might be in for a shock. Research from Mozo has shed some light on just how steep revert rates can be for borrowers caught unaware.
High rates in store for borrowers
We compared 262 fixed rate loans for owner occupiers paying principal and interest and found that borrowers can generally expect to see sizeable rate increases once their fixed term rolls over to a variable revert rate. Here’s a breakdown of the average increases:
- For one year fixed rates you’ll be paying an average of 43 basis points more at the end of the period, with the average rate increasing from 4.02% p.a. to 4.45% p.a.
- For two year fixed rates you’ll be paying an average of 52 basis points more at the end of the period, with the average rate increasing from 3.93% p.a. to 4.45% p.a.
- For three year fixed rates you’ll be paying an average of 46 basis points more at the end of the period, with the average rate increasing from 3.99% p.a. to 4.45% p.a.
Even more concerning, in many cases, revert rates were at least 1% higher than the fixed rate offer. Of the fixed rate loans we compared:
- 40 of the one-year fixed rate loans reverted to a rate at least 1% higher
- 52 two-year fixed rate loans reverted to a rate at least 1% higher
- 40 three-year fixed rate loans reverted to a rate at least 1% higher
A 1% increase may not sound like much, but put in real terms, it can add up very quickly. For example, adding 1% to the interest rate on a $400,000 mortgage over 30 years, taking it from 4.00% to 5.00%, would add $247 to a borrower's’ monthly repayment. That’s nearly $3,000 extra paid in interest in one year.
Suncorp, Bank of Queensland, HSBC, RAMS and Arab Bank Australia were among the lenders with the biggest jumps, all increasing by more than 1.50% p.a.
On the other side of the coin, rates from lenders like AMP, Well Home Loans, Kogan Money, SCU and State Custodians actually dropped after a five year fixed period, some by as much as 1.10% p.a.
What steps should you take to avoid a nasty revert rate?
Sudden hikes can leave you struggling under the weight of your new repayments, so you’ll need to have a plan in place to avoid finding yourself in such a position. If you’re coming off a fixed rate mortgage and a high revert rate is on the horizon, there are a few things you can do.
The first is to get your bank or lender on the phone and see if you can arrive at a better deal. If you’re lucky, you might be able to lock in another fixed term or negotiate to have your loan switched over to an offer with a lower rate.
If that doesn’t prove fruitful, there’s always the option to refinance and find a better deal with a different lender. That’s why it pays to look at the other home loans that are available as your fixed rate term nears its end.
If refinancing looks like your best bet, be sure to check out the options available below.
Home loan comparisons on Mozo - rates updated daily
Smart Booster Home Loan
1 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR
interest rate
comparison rate
Initial monthly repayment
1.99% p.a.variable for 12 months and then 2.48% p.a. variable2.47% p.a.A super low introductory rate home loan with no monthly or ongoing fees. Unlimited free redraws and unlimited additional repayments to help you build your equity and own your home sooner. Multiple loan splits available. (Rates revert after introductory period ends). 20% minimum deposit required. Winner of two Mozo Expert's Choice Award for 2021.
Smart Booster Home Loan
A super low introductory rate home loan with no monthly or ongoing fees. Unlimited free redraws and unlimited additional repayments to help you build your equity and own your home sooner. Multiple loan splits available. (Rates revert after introductory period ends). 20% minimum deposit required. Winner of two Mozo Expert's Choice Award for 2021.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- Optional - with 0.10% additional interest
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $1,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Smart Booster Home Loan
Basic Home Loan
Fixed, Owner Occupier, Principal & Interest, LVR<70%
interest rate
comparison rate
Initial monthly repayment
2.09% p.a.
fixed 3 years2.43% p.a.Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.
Basic Home Loan
Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.
- Ongoing fees
- $0.00
- Discharge Fee
- $400.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 70.00%
- minimum borrowing amount
- $150,000
- maximum borrowing amount
- $750,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Basic Home Loan
UHomeLoan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.75% p.a.
fixed 3 years2.22% p.a.$0 fees and easy application. Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.
UHomeLoan
$0 fees and easy application. Choose between weekly, fortnightly or monthly repayments. 3 year fixed rates are for new Owner Occupier Principal & Interest loans.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free up to $20,000 p.a.
- Redraw facility
- no
- Offset account
- no
- Maximum loan to value ratio
- 80.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- $395 Establishment fee waived for fixed rate loans that settle by 30 September 2022. Receive 1.75% 3 year fixed rate when you apply by 29 April 2021 and settle within 90 days.
Read our Mozo Review to learn more about the UHomeLoan
Celebrate Variable Home Loan
<60% LVR, Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
2.19% p.a. variable2.19% p.a.Fast and efficient online application. Automatic discounts as loan is paid off. Free extra repayments and redraw facility. Zero fees to consider. Min 40% deposit required. Winner of three Mozo Expert's Choice Award for 2021.
Celebrate Variable Home Loan
Fast and efficient online application. Automatic discounts as loan is paid off. Free extra repayments and redraw facility. Zero fees to consider. Min 40% deposit required. Winner of three Mozo Expert's Choice Award for 2021.
- Ongoing fees
- $0.00
- Discharge Fee
- $0.00
- Extra repayments
- yes - free
- Redraw facility
- yes - free
- Offset account
- no
- Maximum loan to value ratio
- 60.00%
- minimum borrowing amount
- $100,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Variable
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Celebrate Variable Home Loan
Fixed Home Loan
Owner Occupier, Principal & Interest
interest rate
comparison rate
Initial monthly repayment
1.89% p.a.
fixed 2 years2.15% p.a.Award-winning low rate home loan that could save you thousands. No application or ongoing fees, fee-free redraws, unlimited additional repayments and an optional offset account for $10/month. Minimum 10% deposit. Winner of Mozo’s Experts Choice Award for Online Home Lender of the Year 2021.^
Fixed Home Loan
Award-winning low rate home loan that could save you thousands. No application or ongoing fees, fee-free redraws, unlimited additional repayments and an optional offset account for $10/month. Minimum 10% deposit. Winner of Mozo’s Experts Choice Award for Online Home Lender of the Year 2021.^
- Ongoing fees
- $0.00
- Discharge Fee
- $325.00
- Extra repayments
- yes - free, up to $20,000 p.a.
- Redraw facility
- yes - free
- Offset account
- Optional - $10 per month
- Maximum loan to value ratio
- 90.00%
- minimum borrowing amount
- $50,000
- maximum borrowing amount
- $2,000,000
- type of mortgage
- Fixed
- Repayment types
- Principal & Interest
- Availability
- Owner Occupier
- Repayment options
- Weekly, Fortnightly, Monthly
- Special Offers
- -
Read our Mozo Review to learn more about the Fixed Home Loan
^See information about the Mozo Experts Choice Home Loans Awards
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