Fixed rate home loan about to end? What to do now that interest rates have gone up

Aussies who fixed their mortgages back in 2020 have benefited from low interest rates for almost three years. But with many fixed terms set to expire soon, borrowers will have to adjust to a massive jump in monthly repayments.

Borrowers who locked in their fixed rate home loan for three years in July 2020 — when the average rate for that term was 2.63% p.a. — have been putting around $2,276 towards their mortgage each month.

If they roll over to a new rate of 5% p.a., the jump in repayments could be as much as $647 per month. This would equate to an extra $7,764 in interest paid over a year.

If the revert rate is as high as 7% p.a., borrowers will have to fork out an extra $1,258 in monthly repayments, which would add up to a staggering $15,096 over a single year.

While the record low rates of the early pandemic period are a thing of the past, there are still options available to borrowers who are looking for a better deal. We explore a few of them below.

What happens when my fixed home loan rate ends?

If you don’t do anything ahead of time, when your fixed rates ends your home loan will automatically roll over to a variable rate (known as a revert rate), and this can be substantially higher than the rate you’re currently paying.

This is why it pays to be proactive — you don’t want to wind up with a home loan that’s too expensive or no longer suits your needs. So before your fixed rate term expires, get in touch with your lender to review your options. They might include:

• Accept the revert rate
  

• Re-fix your mortgage
  

• Negotiate a better deal with your lender
  

• Refinance to another lender
  

Accept the revert rate

Unless you instruct your lender to do otherwise, your loan will switch to a variable rate. This means your interest rate, and therefore your repayments, will be subject to change over time.

Coming off a fixed rate, you might find that there are more home loan features available to you, or fewer limitations on the features you already had.

While features and flexibility are important, you also don’t want to be paying more than you need to be. There’s no obligation to stay on this rate once it comes into effect, so if it’s not to your liking be sure to shop around.

Re-fix your mortgage

You can choose to re-fix your loan, but the rates available to you now will look a lot different to the ones your lender was advertising when your fixed term began. Unfortunately, extending your current interest rate isn’t an option.

If you prefer to lock in another fixed rate, your lender will send you a pre-expiry offer, which will have to be accepted prior to your fixed term ending. 

Before you decide, however, give some thought to where interest rates are currently heading. If they’re likely to go down, fixing your loan now means you won’t benefit from any rate cuts later.

One alternative is to split your loan. This involves dividing your loan into multiple accounts, each with a different type of rate. The rate on the fixed portion will remain the same for the duration of the term while the rate on the variable portion will fluctuate over time.

Negotiate a better variable rate with your lender

If your revert rate isn’t competitive, you can call your lender to see if there are any better deals available. If they can switch you over to a lower variable rate than the one you were set to roll over to, it can save you thousands of dollars over the life of the loan.

To give yourself the best possible chance, make sure you familiarise yourself with the rates your lender is offering new customers and those available elsewhere on the market. 

Be sure to consider the comparison rate — as this takes into account both the interest rate and any fees or extra charges associated with the loan — as well as any features which can help you save on interest, such as an offset account.

Refinance to another home loan lender

If you don’t have any luck negotiating a better rate, that doesn’t mean you’re stuck with your current lender — there’s always the option to refinance to a different one. 

You might have to pay to discharge your current loan and your new loan might come with a few application fees, but these upfront costs could be worth it if it means lower repayments and less interest paid on your loan.

For an idea of what’s currently available, browse the selection below or visit our home loan comparison page, where you’ll be able to filter your search by rate and type.