If you’ve taken out a fixed-rate loan in the past three years, your home loan repayments are likely to significantly increase once your fixed period concludes, according to new analysis.
Investment bank Morgan Stanley estimated that the big four banks have originated more than $550 billion of fixed-rate loans since the 2018-19 financial year, and that about $400 billion of these loans (or 73%) will expire and convert to variable interest rates by the end of 2023.
Based on Reserve Bank data, Morgan Stanley found that the average fixed-rate borrower was paying 0.65 percentage points less in interest than the average variable borrower in May 2022. So if, as some economists expect, the Reserve Bank increased the cash rate by between 1.50 and 2.00 percentage points by the end of 2023, borrowers who moved from a fixed to a variable loan could face a rate rise of between 2.15 and 2.65 percentage points.
How to fight back against rate rises
But if you’re currently on a fixed rate, you don’t have to accept a steep rate rise once your loan switches to variable.
That’s because there are many lenders competing hard for business. These banks and non-bank lenders routinely offer lower interest rates (and sometimes cashback deals as well) to borrowers who switch over their home loan.
At Loan Market, we’re able to compare home loans from over 60 lenders. So when your mortgage switches from fixed to variable, there’s a good chance we’ll be able to refinance you to a competitive loan.
Are you on a fixed-rate loan? If so, find out when it’s due to expire and contact me. Once I understand your scenario, I’ll be able to advise you if you can refinance to a loan better suited to your goals.