As the old age saying goes, “all good things must come to an end,” and so must your ultra-low fixed-rate mortgage. So, what can you do to make the change go off without a hitch? Many people have secured ultra-low fixed-rate mortgages thanks to the historically low-interest rates offered over the past few years. According to the ABS, the highest percentage of fixed-rate mortgages originated in July of 2021, at 46%.
Because of this, the period from July 2023 to December 2023 will be the busiest for borrowers to end their fixed-rate period. Indeed, that time is drawing near.
In light of recent interest rate hikes, a looming fixed-rate cut-off date can be intimidating. However, you have some leeway in the form of the three Rs (reverting, refixing, and refinancing).
- Reverting
If you have yet to make other arrangements before the end of your fixed period, the interest rate on your loan will usually revert to the market rate for variable rates.
And this will come as a bit of a shock to many homeowners across the country if they don’t start preparations now.
According to RBA Deputy Governor Michele Bullock, if borrowers with fixed-rate mortgages do not refinance into a variable-rate mortgage before the middle of 2023, they could see a payment increase of at least 40%.
- Refixing
Your ability to refinance your mortgage with your current lender will depend on the specifics of your loan agreement.
Keep in mind that the dramatic rise in the official cash rate over the past few months makes it very unlikely that you’ll be put on a fixed rate like the one you’re on now.
However, flexibility is always an option.
While five years is the standard longest term for fixing a loan, shorter times are also possible. In light of this, you should first consider the state of the economy before deciding whether or not to fix it and then the length of the term.
This brings people to refinancing, as you may find a new lender willing to provide you with a lower interest rate (either fixed or variable).
- Refinancing
If your current lender is unwilling to negotiate, shopping around for a better refinancing rate might be your best option.
Refinancing rates have reached all-time highs as a result of rising interest rates. June saw a record number of refinancing transactions for owner-occupants.
Therefore, lenders are looking for borrowers with a high credit score, a significant amount of home equity, and a history of timely loan payments.
Now’s the time to start getting ready; here’s how
You can do different things if you are planning on switching from a fixed-rate loan to a variable-rate loan in the near future.
As a first step, initiate long-term preparations immediately. This entails putting money aside regularly to prepare for higher monthly repayments and, if necessary, reducing frivolous spending if money is tight.
Conclusion
Several circumstances could force a homeowner to default on a fixed-rate mortgage. However, before making a choice, it’s essential to consider your options to avoid taking on unnecessary risks. The services of a mortgage broker or financial advisor can be invaluable if you still have questions. If you want to split up early but need to figure out if it’s financially wise, consulting a professional can help you weigh the pros and cons.
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