What should I do when my fixed rate is due to expire?

By Fornaro | 11 October 2022

If you’re currently playing the waiting game wondering what will happen when your fixed rate term ends, now is the time to get your game plan drafted.

Fixed rate borrowers have been temporarily shielded from the Reserve Bank’s six consecutive cash rate increases, but for how long?

It’s estimated that almost 40 per cent of Aussies on low fixed rate loans will roll off them in the coming year. This could result in a considerable increase in mortgage repayments for households that are already stretched with rising cost-of-living pressures.

If your fixed rate is expiring soon, now is the time to review your home loan and make a game plan.

Questions to ask when reviewing your home loan

As a first step, think about your current loan, your personal circumstances and goals.

• Is your current home loan working for you?
• Are you using any features such as offset accounts or redraw facilities effectively?
• Has your financial or family situation changed, or about to change, and could this affect the type of loan that’s right for you?
• What are your intentions for the property (hold, sell, use the equity to renovate or buy an investment property)?

The answers to these kinds of questions may ultimately drive what you decide to do when your fixed rate expires.

What happens when my fixed rate ends?

If your existing loan was originated through Fornaro, we will contact you a few months prior to your current fixed rate expiry to discuss your options. You are also welcome to contact us at any time.

The lender will also likely get in touch with a new offer to re-fix your loan closer to when the loan term ends. If you do nothing, your home loan will usually revert to your lender’s standard variable rate.

What are my options?

Once your fixed term ends, you can stay with your current lender or refinance to a new one. You could:

1. Re-fix your home loan. With this option, you’ll know exactly what your repayments will be during the fixed term and can budget accordingly. Your new fixed rate term will be based on the current fixed rates on offer by the lender, which is not necessarily the same as your current fixed rate interest rate.
2. Switch to variable. Current variable rates may be lower than the proposed new fixed rates and there may be advantages such as loan features and unlimited repayment options that are more suitable to you. Variable rates can fluctuate up and down based on what’s happening in the market/cash rate.
3. Split your loan. This is when a portion of your loan is fixed and the remainder is variable, potentially allowing you to benefit from both loan types.

Can I extend my current fixed rate home loan?

No. However, you can fix your home loan at a new fixed rate being offered by the lender. Most lenders offer fixed terms of 1 to 5 years.

What if I re-fix then need to sell or refinance?

If you do fix your interest rate and need to sell or refinance, you may have to pay break fees to the lender.

Break costs can be expensive. The amount you’ll incur depends on a range of factors, including the lender, the loan amount and the time left on your fixed rate term.

In comparison, there are usually no penalties associated with refinancing from a variable rate.

What can I do if interest rates have gone up when my fixed rate ends?

The most important thing is to engage with you Mortgage Broker early enough to ensure you find a competitive loan that suits your financial and personal circumstances and goals.

By engaging your Broker ahead of your fixed rate expiry date, we can consider all aspects of a loan product – not just the interest rate. What features can save you interest? How does one lender’s fees compare to others?

Often, we can find a more suitable or competitive home loan solution for you.

Fornaro are here to assist

With six consecutive interest rate rises already in 2022, and potentially more to come, now is certainly the time to be thinking ahead.

Contact Fornaro today to discuss your options.