Locking in a fixed rate home loan? Your revert rate could be 1.00% higher
Tuesday 26 November 2019
Right now, home loan interest rates are at an all time low, and if you were thinking about locking in a fixed rate to take advantage, you wouldn’t be the only one. But are you prepared for the sky high revert rate that could be waiting just around the corner?
For the unaware, a home loan revert rate is the rate you’ll be looking at once the fixed term or introductory rate on your home loan is up. It kicks in automatically and is typically much higher than the rate you signed up for — sometimes by up to 1.00%.
While all this will be spelled out in the fine print of your home loan, lenders might not draw attention to the fact when you sign up. For that reason, they can come as quite a surprise to mortgage holders, especially when the news of that first hike in monthly repayments hits.
How much higher is the revert rate?
If you don’t take any action when your fixed or introductory period ends, the interest rate on your home loan will revert back to the standard variable interest rate offered by your lender, or perhaps one even higher.
The difference between the revert rate and the original rate can be quite steep. For example, at the time of writing, the average one year fixed rate in our database sits at 3.35% p.a., while the average revert rate is a much higher 3.92% p.a. That’s an increase of 0.57% p.a.
To put things into perspective, an increase of that size on a home loan of $400,000 (OO, P&I, LVR 80%) would result in an extra $124 in monthly repayments.
Average fixed rate home loan
|Term||Average fixed rate||Average revert rate||Difference|
|1 year fixed (OO, P&I)||3.35% p.a.||3.92% p.a.||0.57%|
|2 year fixed (OO, P&I)||3.20% p.a.||3.92% p.a.||0.72%|
|3 year fixed (OO, P&I)||3.24% p.a.||3.92% p.a.||0.68%|
Among the major banks, the difference is even greater. Say you’ve signed up for a 1 year fixed rate home loan with one of the big four. On average, you can expect a revert rate that’s a staggering 1.38% higher than your original rate.
With the average one year fixed rate from the big four coming in at 3.41% p.a., an increase of that size would add around $300 to your monthly repayments, or upwards of $3,600 over the year.
How can you avoid a revert rate?
If you’re on a fixed rate home loan and the fixed term is nearing its end, you’ll have a few options available to you. You can let your lender know you intend to re-fix, or you can pay a switch fee to change over to another loan offered by the same lender - one with a more attractive rate.
If the rates on offer aren’t too appealing there’s also the option to refinance. This can involve a fair bit of paperwork and occasionally fees, but there’s a good chance it will be worth it in the long run, so make sure you consider your options carefully.
To give you an idea of how much you stand to save, be sure to use our switch and save calculator. And to compare the rates currently on offer, visit our home loans comparison page, or have a quick browse of the selection below.