When the media are throwing around terms like a “fixed-rate cliff” and “crisis”, coming off a fixed rate mortgage can seem like a rollercoaster. But making informed decisions about your mortgage and budget can go a long way in navigating this transition smoothly.
A staggering 880,000 fixed-rate loans will come to an end before the end of the year, which will see a significant number of Australian households facing higher mortgage repayments. With variable interest rates now much higher than the rates locked in years ago and NAB predicting we may see two more rate rises yet, it’s crucial that you start preparing now for the potential financial impact.
How significant will the increase be?
Before you start to explore your options, it’s important to understand exactly how much your mortgage repayments will increase by. According to CoreLogic data, homeowners who took out an average-sized loan of $538,936 with a fixed rate of 1.98% could see their repayments increase by over $1,000 per month when rolling over to a standard variable rate. Add to that the rising cost of living, and you may be left with very little room to move in your monthly budget.
Consider Refinancing
When your fixed rate mortgage comes to an end, it’s a good idea to explore refinancing. This is because when a fixed-rate loan ends, lenders don’t often roll existing clients onto the best rates they have. By refinancing, you can likely access lower introductory rates, saving you thousands of dollars in repayments over time.
Make sure you take the time to research and compare offers from various lenders to find the best possible interest rates and terms that align with your financial goals. It’s helpful to consult with a mortgage broker or financial advisor who can guide you through the refinancing process.
Calculate and start planning
Whether you’re refinancing, or sticking to your variable rate, the next step is to start calculating the new interest rate you’ll be paying once your fixed rate ends. This will give you a clear picture of how much your monthly repayments will increase. You can use online mortgage calculators or consult with your lender to determine the exact figures.
Then, you can start planning your monthly budget to see if your repayments will be affordable. By starting this process before the new rate kicks in, you can adjust your budget accordingly and minimise any potential financial strain.
Re-evaluate your spending
Preparing for higher mortgage repayments can be an opportunity to reassess your financial habits. Review your current spending patterns and identify areas where you can cut back or save money. Creating a realistic budget and sticking to it will help you manage your finances effectively during this transition. Consider exploring money-saving tips such as negotiating better deals on utilities, or exploring alternative transportation options to save on fuel costs.
Start paying the higher rate now
Rather than waiting until the higher rate kicks in to reassess your budget and spending, it can be useful to start paying the higher rate now. This will help you sharpen your financial habits and create a buffer which can act as a contingency plan in case you encounter unexpected expenses or find it challenging to meet the increased mortgage repayments later on.
Evaluate your options
If you find the increased repayments are unsustainable for your current financial situation, it may be necessary to consider other options. Downsizing or moving into a cheaper suburb could be viable options to avoid financial strain. By approaching this proactively, you allow yourself more time to make informed decisions and to prepare your property for sale.
To talk to an experienced Prudential Real Estate agent about getting a valuation for your property, contact one of our four offices.
Prudential Real Estate Campbelltown | (02) 4628 0033 | campbelltown@prudential.com.au
Prudential Real Estate Liverpool | (02) 9822 5999 | liverpool@prudential.com.au
Prudential Real Estate Macquarie Fields | (02) 9605 5333 | macquariefields@prudential.com.au
Prudential Real Estate Narellan | (02) 4624 4400 | narellan@prudential.com.au
Information referred to in this article was obtained from publicly accessible sources, such as the RBA, CoreLogic and AFR. The information provided in this blog post is for general guidance only and should not be taken as personal advice. We do not accept any liability for any errors or omissions.
