Coming off a fixed rate? - here's how to prepare

During the pandemic, numerous Australians pursued financial stability by opting for fixed-rate home loans at historically low interest rates.

By 2022, this trend accounted for roughly 40% of all home loans . However, as these fixed-rate terms approach expiration, borrowers will inevitably face the prospect of transitioning to different loans with significantly higher interest repayments.

If your fixed-rate term is scheduled to end this year, it is essential to assess its impact on your financial situation. This may involve exploring different options to handle potential repayment increases by examining your home loan alternatives. Additionally, consider revisiting your budget, adjusting other debts like credit cards, and setting aside extra cash to navigate any challenges that may arise.

Review your budget

Get ready for possible higher loan repayments by carefully examining your budget and pinpointing areas where you can trim expenses. Utilise our budget planner [https://communityfirst.com.au/tools/calculators/budget-planner] to start this process.

As part of this financial health check, be willing to adapt your lifestyle to confront financial challenges. Taking proactive steps, such as downgrading your vehicle, liquidating assets, or exploring additional employment opportunities, can ease financial pressures.

Make debts easier to manage

If you carry additional debts, such as multiple credit card balances, you can consider consolidating them into the one loan such as a personal loan or your mortgage. By transitioning from multiple payments to a single, straightforward repayment over a different term, it could simplify managing your financial commitments, prevent you from over-spending on credit and potentially free up some cash. It’s important to note that this doesn’t necessarily mean you’ll pay less interest, however it can help you free up some cash to help with meeting your commitments.

Similarly, should you find yourself with extra funds, refrain from spending that money. Instead, contemplate stashing it in either an "offset account" [https://communityfirst.com.au/how-an-offset-account-works] or "redraw" [https://communityfirst.com.au/access-redraw] to build a financial cushion for unforeseen circumstances. Another prudent option is to consider making additional repayments on your mortgage to diminish the outstanding balance before transitioning from your fixed-rate period.

Choosing the right next step for your home loan

Once your current fixed rate term expires, you can refix for another term if permitted by your existing lender, or let it revert to a variable rate.

Though the rate at which you refix may differ from your previous fixed loan, you might still prefer the certainty of knowing what your repayments will look like for another term. You’ll also be protected from any rate rises until your fixed term is complete. On the other hand, if variable rates remain lower than your fixed rate, you could miss out on the potential savings.

Also, consider your plans for the property. If you fix for a further term, and choose to sell or payout the loan before the fixed term has ended, this may attract an early repayment fee.

If you’re not ready to commit to another term, you can let your home loan revert to the relevant current variable rate. You should check the terms and conditions of your loan to make sure you understand what will happen at the end of the fixed term.

Variable rates, as implied by their name, are subject to change. They can however offer features and benefits different to fixed loans, so it pays to do your homework and consider which type of loan will best suit your needs.

For instance, features such as offset accounts coupled with the flexibility to make unlimited extra repayments, can collectively make variable loans an attractive choice for borrowers. However, should you discover that you don’t have a lot of cash to park in an offset account, it might be wise to investigate basic loan alternatives that can offer lower rates or fees. If uncertain, discuss alternative options with your lender.

Check-in for a home loan check-up

If you’re about to transition off a fixed rate, it’s the perfect opportunity to chat with us about your options. It's also important to note that if transitioning to a higher repayment may cause financial stress, we encourage you to reach out to your lender as early as possible.

Our team of Mortgage Specialists at Community First Bank excels in home loan matchmaking.

They’ll walk you through the features and benefits available for your current circumstances and guide you through our available rates.

Where to start

To find out more about our home loans, pop into one of our Community First stores or call the Community First team on 1300 13 22 77. One of our Mortgage Specialists will guide you through the process and be able to answer all your questions.