Do you remember that time you signed up for a fixed-rate home loan and felt all cozy knowing your repayments would stay the same for a set period of time?
Well, that time is coming to an end. The bad news is that means your interest rate could change (boo!). But don’t worry, we’re here to help you navigate this transition and explain what happens when your home loan fixed rate expires.
Fixed-rate home loans can be a great option for borrowers who like certainty when it comes to their repayments. That’s because your interest rate stayed the same during the fixed period, which typically lasts from one to five years.
As a result, your repayments stay the same from month to month, allowing for easier budgeting.
But you might be wondering what happens when your fixed rate term ends.
What happens when the fixed rate period ends?
Well, if you don’t do anything when your fixed term is nearing its end, your mortgage will automatically roll onto your lender’s standard variable rate (SVR).
The lender’s SVR might not necessarily be the most competitive deal on the market, particularly if you fixed your rate more than three years ago. That’s because Australia’s mortgage market is very competitive – so a lot could have changed in the time since you first took out the loan.
Given the recent interest rate increases, it’s most likely that your “roll-to rate” won’t be the best deal you can get.
It’s also likely things haven’t stood still in your life either, whether you’ve got a new job, scored a higher salary or had a baby in the intervening years. As a result, the end of your fixed-rate period is a great opportunity to review your home loan to make sure it still fits your needs and goals.
What are your options when a fixed-rate period ends?
Normally, your lender will contact you a few months before the end of a fixed term with the details of your new variable interest rate.
You then have to decide what’s your best move from the three following options:
- Do nothing – in which case your loan rate will change to the lender’s SVR without any additional fees or paperwork and most likely a really high rate.
- Refinance your home loan – this can help you get a more competitive interest rate or a home loan that’s a better fit for your circumstances
- Refix your home loan – this is unlikely to be at the same interest rate you’re currently paying
Can you break a fixed-rate home loan early?
You can break the fixed-rate term of your mortgage, but doing so can be costly. That’s because your lender will have borrowed money at a fixed rate from the wholesale market to fund your loan. These funds still need to be repaid, so the lender will want to recoup this money by charging you a break fee.
This fee will be different for every borrower but can run into thousands of dollars. As a result, it’s important to crunch the numbers to make sure the benefits of exiting a fixed-rate home loan outweigh the costs.
What happens if interest rates have gone up?
Sadly, there isn’t much you can do if interest rates have increased since you first took out your mortgage. That said, even a small difference in the interest rate you get charged can make a big difference.
So it can be a good idea to find the most competitive interest rate on the market which you can refinance to (if your circumstances allow).
Looking for a competitive interest rate on your home loan? Well Money is an award-winning mortgage lender with some of the lowest interest rates in Australia. Click here to find out in just 60 seconds whether you qualify for one of our home loans or call us on 1300 899 724.