Tips to Prepare For Your Fixed Rate Ending

There are many of you whose fixed rates are due to expire in the next 6-12 months. For those of you paying an interest rate in the low 2s, your loan repayments will be close to double what you are paying now.

For example, on a 500k loan over 30 years at 2.19% and $1900 per month repayments, you could be moving to a rate of 6%, with monthly loan repayments increasing to $3000 per month.

To prepare for this change, I suggest the following:

If ending within the next 12 months

Try to make higher repayments each month, starting now. If your fixed rate product allows you to make additional repayments without being penalised, add these additional repayments to your loan account to be held in redraw. Otherwise, put them into an offset account or a savings account, with the intention that those funds are not to be touched. Once your fixed rate expires, you will have additional funds to act as a buffer and you could use those funds to help pay the mortgage for the first few months while you adjust to making higher repayments.

If ending in the next 3 months

Soon you will receive a letter from your bank, advising you of the variable interest rate that you will be offered once the fixed rate ends. In general, this rate is not their cheapest, so it is definitely worth negotiating with your bank for a better rate.

Some banks are not offering their best rates to existing customers, so it is worth looking at other available options. 2-3 months prior to a loan expiring, a refinance application can be filed with another bank, ready to settle on the date of your fixed expiry so you can continue to maximise your cheap rate until then. It generally takes 6-8 weeks to refinance a home loan, so it isn’t too early to start looking at other options.

What next?

Speak to a broker to find out the interest rate you will likely receive at the expiry date of your fixed rate loan in comparison to other banks’ current rates and if you are in a financial position to refinance.

To arm yourself before the fixed rate expiry, go onto an online calculator to determine what your new loan repayments may look like, using 6% as a rough guide. While it is daunting to think about such a large increase in your home loan repayments, it can be a less stressful experience if you are well-prepared, both financially and emotionally.

If you have any questions about your current fixed rate and what your new repayment options could look like, please call me on 0414670151 or email me at jennifer@jblhomeloans.com.au