Over the coming months, we’ll see a large portion of fixed rates on home loans expire. This can be a concerning time with uncertainty as to what these new rates will be, particularly in a market with such high interest rates. It is a given that repayments will increase, but at Credabl we’ve got you and we’re here to help you navigate this. We sat down with our very own Paul Hastings, Head of Home Loans and Lindsay Rose, Home Loan Consultant, to get the details.
Thirty days from the fixed rate expiring, lenders will generally send a letter to advise what the new rate will be. It is very important to read this letter - the fixed rate will expire and automatically roll over to the variable rate. Paul advises that this likely won’t be the best rate or be the best structure for you in your current circumstances. If you don’t take note of the letter, you will likely be hit with a higher rate without even knowing, so you do need to act.
Thankfully, there are options available to you based on your specific circumstances:
When you receive the letter, look at the new variable rate and see if it is competitive or if you need to renegotiate. If the rate is not good for you, speak to your lender and understand the degree to which you can renegotiate.
For peace of mind, you may want to consider refixing the loan. This will give you certainty that your loan repayments will remain stable over whatever fixed rate period you choose to fix it for. It is important to understand that a fixed rate loan does not give you the same flexibility of repayment as a variable rate loan and to compare how the fixed rate pricing compares to the variable rate pricing at the time. This may help you decide as to how long to fix the loan for.
If both options sound appealing, consider a split rate, which effectively allows you to "split” your loan across both a fixed and variable rate. Doing this means you can minimise the risk of market movements while enjoying some flexibility.
Refinancing may be an option if you believe you can get better terms for your loan at an alternative bank or financial institution. It may also provide the opportunity to access extra funds in the event where a borrower is concerned about their cashflow in a rising rate market. If going down this route, Lindsay warns that you will need to look at the current value of the property your loan is against – if the value has dropped and the loan-to-value ratio (LVR) has increased, this will be harder.
Paul and Lindsay advise that there are pros and cons to each option – for example, fixed rate loans come with limitations as to how much can be paid into them outside of regular repayments. You also cannot typically have a 100% offset account with a fixed rate, though there are some options in the market that will allow this and at Credabl, we offer a 100% offset account with a fixed rate. Variable rates are subject to inflation fluctuations, but they provide more flexibility when it comes to additional payments against the loan should you choose.
Read our article weighing up fixed vs variable interest rates here. To learn more about fixed rates expiring and how we can help, click here to find out about home loan options for medical professionals or speak to a Credabl consultant today on 1300 27 33 22.
Part 2 of this article, Negotiating a Better Interest Rate: Here’s How continues here.