Over $300 billion worth of fixed rate mortgages are set to expire before the end of 2023 which could cause significant financial stress for Australian property owners.
The ending of these fixed rate mortgages coupled with a rising interest rate environment will present many challenges for mortgagees.
Borrowers will be coming from low fixed rates and face substantially higher repayments and interest rates due to the recent rate hikes, along with the increased cost of living pressures.
Mortgagees need to get on the front foot now before their fixed rate loan expires to ensure they understand how they are affected and determine how to best position themselves financially.
For those affected, they should give consideration to the following:
Review your current budget
When reviewing your budget, it is important to look at both your income level and your spending habits and review this against a potential increase in loan repayments when the fixed rate loan ends. Do you have the financial capacity to meet an increase in loan repayments? Will an increase in repayments create financial stress?
When reviewing your expenditure, take into account discretionary spending habits, such as online shopping and eating out; memberships and subscriptions; and a review of utilities and insurance.
Negotiate with your current lender
Your current fixed rate loan may have been the best loan product available to meet your circumstances at the time, however that doesn’t mean it is still the best product available now. People’s circumstances change and the loan products available will also have changed. It is a good idea to speak with your current mortgage lender to discuss the current rates and loan products available. Negotiating a better rate could save a lot of money over time.
Review other lenders
Part of your financial due diligence is checking the loan products that are being offered by other lenders. These loan options may provide a better outcome than what is being offered by your current provider. It might also give you some ammunition to negotiate a better deal with your current provider. You should always shop around for the best deal to suit your circumstances.
Make extra repayments before the fixed rate period ends
While the fixed rate loan is on a lower interest rate, consider making extra repayments if your budget will allow. This will help to reduce your loan balance before a potential higher interest rate commences in the future and save money on reduced interest payments.
It is important to be proactive in managing a fixed rate loan, with mortgagees needing to assess the market for the deal that fits their personal circumstances. This has the potential to provide increased flexibility and save considerable money in lower interest repayments over the life of a loan.
This article was first published in the Winter 2023 issue of Financial Times.