Home loan rates are at record lows, but how much will your revert rate cost you?
If you’ve been reading the property pages recently, becoming a homeowner might seem like a more attainable goal than in previous years. Home loan rates have seen significant drops in the past few months, with top offers diving below the 2.00% mark.
But if you want to lock in one of these historically low interest rates, there’s something you can’t forget: revert rates.
What is a revert rate and does my home loan have one?
Every fixed interest rate home loan has a timeline, commonly between one and five years. While fixed options often come with less flexibility and fewer features than a variable home loan (which have interest rates that can change at a lender’s discretion), you might choose a fixed rate to ensure your repayments consistently fit your budget.
But when the term ends, the fixed rate switches to a variable revert rate, unless you choose to sign on for another fixed term. So yes, if you have a fixed home loan, there will be a revert rate attached to it. This is generally higher than what you’ve been paying, and often higher than the market average.
RELATED: August home loan snapshot: More rates starting with ‘1’ hit the market.
How much higher are revert rates and what will it cost me?
According to Mozo’s database, the average one and three-year fixed rates are 2.58% and 2.62% respectively. This is for owner-occupiers with a loan to value ratio (LVR) lower than 80% who are paying off the principal and interest on a mortgage of $400,000.
Mozo’s comparison data shows the average revert rate for both terms is 3.54%. That’s a significant jump – 96 basis points above the average for one-year terms, and up 92bp for three-year fixed home loans.
How much will that cost you? Let’s do some maths…
Say you have a three-year fixed mortgage on the average rate, which you’re paying off over 25 years. You’ll be making monthly repayments of $1,819, and pay $145,621 in interest over the life of the loan.
On the average revert rate, it’ll increase to monthly repayments of $2,011 and the total cost in interest will be $203,326.
That’s a monthly difference of $192 and an additional $57,705 you’ll have to fork out in interest across your repayment period.
How can I get a better home loan revert rate?
As always, shopping around for the best offer should be your go-to move. However, if your revert rate gets higher by the time your term is up, consider negotiating a better deal with your lender. If they’re not playing ball and you’re in a financial position to do so, investigate refinancing with another institution to nab a lower rate.
If you’re jumping into the property market now, read up on the low-rate home loans below which also offer competitive revert rates.
Star Classic Fixed Special Home Loan (Principal & Interest)
- Low 1-year fixed rate of 1.98% (2.49% revert rate)
- Free extra repayments and online redraws
- No ongoing service fee
It’s pretty hard to go past a home loan interest rate starting with a ‘1’. There is a jump in the revert rate, but it’s 1.06% below the average. Beyond that, you get more flexibility to pay off your mortgage sooner with free extra repayments and redraws, as well as having no pesky service fees.
FreedomLend Fixed Home Loan
- Solid 2.34% 1-year fixed rate (2.39% revert rate)
- Free extra repayments (up to $10,000 per year)
- Option to split account
The FreedomLend Fixed Home Loan offers one of the most competitive revert rates. The 2.39% reverate rate is only 5 basis points higher than the rate for the one-year fixed term, and is actually 5bp lower than the three-year offer. There’s also the option for a split account, meaning you can nominate a portion of your loan for the fixed rate and another for the variable rate.
If you’re after more fixed home loan options head to Mozo’s wider home loan comparison page.
* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.
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