In the last two years, many Australians have enjoyed a level of certainty locking their home loan to a fixed rate at or below 2%. In fact, at the start of 2022, nearly 40% of Australian homeowners had a fixed rate – up from 20% in early 2020.
If you’re one of these homeowners, you would have been watching the recent string of Reserve Bank rate hikes feeling grateful for your fixed term arrangement. But if you’re starting to worry as your fixed rate loan gets closer towards its maturity date, there are plenty of ways you can prepare yourself to manage the change in repayments. To learn more about the rate rise, visit our rate rise hub.
My fixed rate is ending, what can I do?
1. Move to an agreed variable rate
Unless you agree with your bank to switch to a different loan type when your fixed rate period ends, your loan your loan will automatically change to a variable rate. The rate can change, making it hard to pinpoint the exact amount you’ll pay until closer to the date your fixed rate matures.
The upside of a variable rate versus a fixed rate is that you may have greater flexibility, like the ability to make extra repayments, have access to a redraw facility, or use an offset.
If the flexibility of a variable rate suits your needs, you can also negotiate a better rate with your bank. There’s never harm in asking what more they can do for you.
2. Re-fix your home loan
If you’ve enjoyed the stability of a fixed rate, you may decide to fix your interest rate again.
You won’t pay the same fixed rate as before, but you will have the peace of mind of knowing what your repayments will be, which can help you plan and budget around your life without more potential rate rises.
3. Split between fixed and variable rates
Splitting your loan between fixed and variable rate components can give you the best of both worlds – the flexibility and features of a variable rate, combined with the certainty of a fixed rate. All you have to do is decide how much of your loan to fix, and how much to leave variable.
4. Switch to a different type of loan
The end of a fixed rate can be an opportunity to switch to a different home loan. This is worth considering especially if your goals or life circumstances have changed. Do your research and find a home loan that best suits your needs.
Refinancing to a new home loan can potentially see you save with a lower rate, and benefit from flexible features to help you get more from your money – and mortgage.
If you’re thinking of switching loans, keep an eye on the comparison rate. It takes into account many of the fees you could pay with a loan, providing a more accurate picture of the true cost.
Preparing for your fixed rate to end
Planning ahead can help you manage higher interest rates. Here are some ideas to help you get started before your fixed rate comes to an end.
Gain a clear picture of possible repayments
An uptick in home loan repayments can be nerve-wracking, and part of the concern can be fears about the unknown.
Try crunching the numbers on our Loan Repayments Calculator to give yourself an idea of how your repayments could change. It lets you play around with the numbers to see how your repayments may be impacted across a variety of rates and loan balances.
Build a buffer before you move onto a variable rate
An offset account for your variable rate loan is an especially useful home loan feature when rates are rising. The more you have in the offset, the more you’ll be able to save on loan interest each month.
Before your fixed rate ends, start building your savings to deposit into your offset when the time comes. Another simple way to grow your offset is to have your salary deposited into the account.
Take a closer look at your spending
An upswing in loan repayments can put a squeeze on the household budget. So, it’s important to review your spending to see where savings can be made.
Shop around for better deals on utilities or other big expenses like your car and home insurance. Go easy on payment methods like credit cards and buy now, pay later that can see you rack up additional charges.
Assess your regular outgoings and see where you can make some changes. Something as simple as cancelling a subscription service you don’t use can put some money back in your pocket each month.
Have a trial run
Plan ahead for the end of your fixed rate with a trial run of higher repayments. Tuck the extra funds into a savings account to see how your budget copes.
It’s a way of stress-testing your finances, and it can be a cue to revise your budget to see where you can cut back in preparation for the move to a higher rate.
Need help finetuning your budget? Check out our Budget Planner to see how much you can save based on your income and expenses.
Try our Budget Planner
Visit our Rate Rise Hub
If you're feeling stressed about rate rises, we're here to help. Our Rate Rise Hub has everything you need to help manage your finances amongst the rising cost of living.
Visit the BOQ Rate Rise Hub