What happens when your fixed rate mortgage expires?

According to Marion Kohler, Head of Economic Analysis at the Reserve Bank of Australia (RBA), around 800,000 fixed rate mortgages will mature in Australia over the next 12 months. And since the average household size in Australia is 2.59 people, that’s over two million people impacted.

If you’re one of those people whose fixed term home loan is set to expire, you might worry about what this means to you and your family. Particularly in this economy. So, if you’re asking yourself, ‘what happens when your fixed rate mortgage expires?’ Our expert team weighs in.

What happens when your fixed rate mortgage expires?

Before we get down to the nuts and bolts of what to do when your fixed rate home loan expires, let’s explore what will happen when your home loan matures.

Depending on the terms of the mortgage, most Australians will have three options when their fixed rate home loan matures.

1. Revert to your lending institution’s revert rate. If you choose not to do anything, your maturing fixed rate will likely revert to the lender’s variable revert rate automatically under the terms of your home loan. It’s important to pay attention to this, however. That’s because the revert rate could be around 0.5% higher than the standard variable rate offered by your lender.
2. Refix your mortgage for another term at your lending institution’s current interest rate. Be aware that it’s not possible to extend your fixed term at your loan’s existing fixed rate. This is because the RBA has increased its cash rate at every board meeting since May 2022. So the fact is that in almost all situations your lending institution’s current fixed home loan rate will be higher than when your original loan was negotiated and signed.
3. Refinance your home loan with your existing lender, or with a different lending institution. This will give you options to explore a fixed, variable or split rate home loan. And you can consider different features and look for the best interest rates for your situation.

What should I do when my fixed rate home loan expires?

If you’re preparing for your fixed rate home loan to expire, there are some steps to take to make the process easier.

Review your current home loan

This is a great time to take the opportunity to review your home loan with a home loan health check. You’ll know where you are, and can ensure that your current mortgage meets your current and future circumstances. Better, you’ll find out if it doesn’t meet your current needs and be able to take the right steps to remedy that situation.

Increase your repayments now to limit repayment shock

If your fixed rate term is due to expire in the coming months, it’s a good idea to increase your repayments now. This will help you to steadily build a financial buffer against the shock of increased repayments when your fixed term ends.

Be aware that regardless of the home loan action you choose to take, it’s likely that your repayments will increase at the end of your fixed-rate term. That comes down to the steady increases in the RBA cash rate since a record time period of low rates.

It’s also important to check whether your lending institution has limits in place regarding additional repayments per fixed term year. If they do, it may make taking this step tricky. Instead, you can increase your ‘payments’ but stash the money away into a bank account. That will give you a financial buffer and get you used to paying more on your mortgage in a low risk situation.

If you’re unsure as to whether your fixed rate loan has repayment limits, get in touch. We’d be happy to review the terms of your home loan for you.

Consider whether you can refinance your fixed rate home loan

The maturation of a fixed rate home loan is an excellent time to consider refinancing. Your home loan health check will review your current mortgage terms and interest rate, as well as your own particular situation. And it will help you understand whether refinancing is a great option for you.

If you decide to explore refinancing, our home loan experts can help you research the best lenders and loan products for your circumstances. We’ll then produce a Customised Proposal Report that includes a list of the best lenders for you, and our recommendation for the most competitive package for your circumstances.

The benefits of refinancing

Refinancing is generally a really great option, and not as pricey or time consuming as many Australians believe. Refinancing can help you secure lower home loan repayments at a lower interest rate. And you can find lenders that offer all the features you want (or don’t want). Of course, getting expert advice in comparing home loan products is the most financially prudent way to proceed.

If you do decide to refinance, it’s important to be aware of a few things.

• Your budget and financial commitments. Understanding these will ensure that you’re making the most of the financial opportunities available to you through refinancing. It will also help you work with your mortgage broker to find the best home loan product for you, that fits in with your long term financial and personal goals.
• Refinancing can help you save money. That through refinancing your home loan, you are able to find the most competitive market interest available in a home loan product that is most suited to you. This was the experience of an Ashgrove family in our recent refinancing Case Study.
• Your new variable repayments. Your new repayments are likely to be more than under your current fixed rate home loan, due to the monthly increases in the RBA’s cash rate since May 2022. It currently stands at 3.35%. Refinancing gives you the best opportunity to find lower variable-rate repayments through first-time offers from new lenders.
• Whether a new fixed term loan might work for you. It may be in your best interests to negotiate a new fixed term loan, depending on your personal circumstances. Extending the fixed rate term means you will have certainty in your loan repayments for this additional period of time. Refinancing gives you the option to explore these types of loans more fully.

Speak to the experts

Hopefully we’ve answered the question of ‘what happens when your fixed rate mortgage expires’. So, if you’re one of those whose fixed rate home loan matures in the next 12 months, get in touch.

We can help you with a home loan health check. And we can review your home loan, any investment loans and your budget, to ensure your (current and potential) mortgage best suits your personal circumstances.

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