The mortgage cliff

HOW TO MANAGE WHEN FIXED-RATE LOANS EXPIRE

A“huge number” of fixedrate mortgages will expire in 2023, smashing the mortgage repayments of borrowers – but there are things they can do now to help deal with the financial pain.

This looming mortgage cliff has been a threat since the Reserve Bank started increasing interest rates in May 2022, lifting them every month until December, and crunch time is coming fast for fixed-rate loans reverting to sharply higher variable rates.

In 2020 and 2021 many Australians signed up for ultra-low fixed rates near 2 per cent (well below current variable rates of around 5 per cent) and typically for terms of two or three years.

Mortgage broker Finspo’s chief executive, Angus Gilfillan, says a large portion of borrowers have not felt the impact of the RBA’s 3 percentage points of rate rises during 2022, and many will face home loan repayments instantly rising up to 61 per cent. “It’s a huge number – 46 per cent of all fixed rate loans, 16 per cent of all mortgages, are expected to expire in 2023,” he says.

GREAT RATES GONE

“Once someone’s fixed rate expires, their bank won’t be giving them the same great rate they currently have, with the market as it is right now,” Gilfillan says. “The bank may not even roll them onto the most competitive variable rate that they’re offering new customers, which really hurts.”

He says borrowers facing the mortgage cliff should: Figure out what their rate and repayments will be when the fixed term expires, so they can mentally prepare. Online calculators can help with this in less than 60 seconds.

● Speak with a mortgage broker three months before the fixed rate expires to assess options and plan the next move.

● Consider refinancing, requesting a better deal from your current lender or switching lenders.

“There are a lot of lenders right now who are offering cashback if you make the switch to them, (but) check the cost of switching lenders, and the fine print,” he says.

FEBRUARY RISE LOOMS

Ratecity.com.au research director Sally Tindall says the Reserve Bank is likely to continue lifting rates this year, almost certainly starting in February following stronger-than-expected inflation data released last week.

“For anyone who has not had their head in the game, the cliff will come as an almighty shock,” she says.

Borrowers should do their research and canvas their options at least two months before their fixed rate ends, Tindall says.

“Make extra repayments now. Call your bank, find out what rate you will roll onto, work out the mortgage rate and start to make that repayment now.”

This will build a financial buffer in your home loan, Tindall says.

“If you can’t make those repayments, it gives you time to start making significant changes to your lifestyle and your budget now and start having conversations with your bank.”

People who own at least 30-40 per cent of their home are in a strong position to bargain for a better deal as a refinancing boom is underway with banks battling for new customers, Tindall says.

Right now, any interest rate under 4.7 per cent is competitive and under 4.5 per cent is a “cracking rate”, she says.

“Get advice, even just to work out your options. A broker is a good place to start, but shouldn’t be the beginning and end of your research.”