Is your fixed-rate mortgage ending soon? For many Australians nearing the close of their fixed-rate terms in 2024, adjusting to new, higher rates can feel overwhelming. As borrowers face increased monthly repayments, preparing ahead is essential to manage this shift smoothly and protect your financial wellbeing.
Here, we’ll explore three main strategies to help you adapt to changing rates: reverting, refixing, and refinancing. Each approach offers ways to manage your mortgage transition, giving you options to ease financial pressure.
1. Reverting to a Variable Rate
When your fixed-rate period ends, most loans automatically revert to the lender’s standard variable rate unless you make other arrangements. This shift can bring a significant increase in monthly repayments, which may be difficult to manage if you’re unprepared.
If you let your loan revert to a variable rate, here’s what to expect:
- Higher Monthly Payments: Many variable rates are much higher than the initial fixed rates, which can add hundreds of dollars to your monthly payment.
- Interest Rate Fluctuations: Variable rates change in response to market conditions, meaning your payments could go up or down over time.
- Flexibility: Unlike fixed-rate loans, variable-rate loans often allow you to make extra payments without penalties, which can help pay down your loan faster if you have extra funds.
Tip: Contact Soho Home Loans well in advance of your fixed rate ending so we have plenty of time to model different options for you—whether that’s reverting, refixing, or refinancing.
2. Refixing Your Mortgage
Refixing your mortgage involves locking in a new fixed rate with your current lender once your initial fixed-rate period ends. For many borrowers, refixing can provide stability in monthly payments, helping you avoid the fluctuations of a variable rate.
Here are some key points to consider with refixing:
- Current Fixed-Rate Offers: Fixed rates today are likely higher than your original rate, given recent rate increases. Check with your lender to see what fixed-rate terms are available now.
- Negotiation Potential: Sometimes, your lender may be open to negotiating terms, especially if you’re a long-term customer. Don’t hesitate to ask about securing a better rate.
- Flexible Term Lengths: While many fixed-rate terms range from 1 to 5 years, choose a period that aligns with your financial goals and comfort level with future rate changes.
3. Refinancing for a Better Deal
Refinancing involves moving your mortgage to a new lender to secure better terms or a lower interest rate. With a highly competitive loan market in 2024, refinancing could help reduce your monthly payments or lock in more favorable terms if your current lender’s rates don’t suit you.
Consider these factors when refinancing:
- Competitive Rates: Lenders are eager to attract borrowers with good equity and solid repayment histories, so it’s worth shopping around to find the most competitive rates.
- Improved Terms: Refinancing can offer benefits like lower rates, more flexible repayment options, or features such as offset accounts that could help you save in the long run.
- Potential Costs: Keep in mind that refinancing may involve upfront costs, such as exit fees from your current lender and application fees with the new lender.
Preparing for the Transition
As your fixed-rate period comes to an end, proactive preparation can help you manage the transition with ease. Here are steps to consider:
- Build a Savings Buffer: Start setting aside extra funds to cover any potential increase in monthly repayments. A savings buffer provides a cushion if rates rise higher than expected.
- Review Your Budget: Take a close look at your monthly expenses and see where you can cut back if necessary. Reducing discretionary spending can free up funds to help meet higher repayments.
- Explore Options Early: Don’t wait until your fixed-rate period ends to consider your choices. Contact Soho Home Loans well in advance to discuss your options, whether that’s reverting, refixing, or refinancing.
By planning ahead, you can make the transition smoother and maintain control over your financial future.
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FAQs on ‘Fixed-Rate Mortgage Ending’
What happens when my fixed-rate mortgage ends?
When your fixed-rate period ends, your mortgage shifts to your lender’s standard variable rate (SVR). SVR rates are often higher, so reviewing your mortgage options is wise.
What should I do if my fixed rate ends in 2024?
When your deal ends, compare mortgage rates to avoid potentially higher repayments on the SVR. Switching to a new deal could save on interest payments.
What will my mortgage rate be after my fixed term ends?
After a fixed rate ends, lenders generally transfer you to the SVR, which usually has a higher interest rate. Consider options like remortgaging or switching to a tracker mortgage to maintain lower rates.
What are the mortgage interest rates expected to be in Australia in 2024?
As of mid-2024, Australia’s mortgage rates are around 6.05%, a rise from the recent low of 2.63% in 2022, according to the Reserve Bank of Australia.
What is the forecast for interest rates in 2024-2025?
Forecasts suggest a 6.2% rate for 30-year mortgages by the end of 2024 and a drop to 5.7% by the end of 2025.
Will interest rates decrease in 2026?
Projections indicate the federal funds rate may lower gradually to around 2.00%-2.25% by the end of 2026 as the Fed continues rate cuts.
Is it worth ending a fixed-rate mortgage early?
If the early repayment fee is outweighed by long-term savings on a new, lower-rate mortgage, leaving a fixed-rate early might be beneficial, especially if you need funds urgently.
Should I break a fixed-rate mortgage for a lower interest rate?
Breaking a fixed-rate mortgage to secure a lower rate can reduce repayments. However, ensure the savings justify any prepayment costs.
