About half of all fixed-rate loans will expire this year
Borrowers who are reaching the end of their fixed-rate mortgage terms are facing the risk of a significant increase in repayments, potentially leading to financial strain.
Many borrowers are expected to face the full impact of the 4% increase in the cash rate that has occurred over the past year, resulting in a substantial surge in their monthly payments, The Australian reported. According to Canstar, these increases could reach up to 63%.
For instance, those who secured a two-year fixed loan rate in 2021 when banks were offering rates as low as 2.21% could see their repayments on a $500,000 loan rise by $1,200 to $3,101 per month based on the average variable rate of 6.57%, according to The Australian.
Similarly, borrowers who opted for a three-year rate in 2020 when the average rate was 2.61% face a 53% increase in their repayments, with the monthly commitment on a $500,000 loan jumping from $2,004 to $3,074.
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The Reserve Bank of Australia estimates that approximately half of all fixed-rate home loans, amounting to around $350 billion, will expire this year. This situation could further worsen if, as predicted by NAB and Westpac, the cash rate continues to rise in the future.
“Fixed-rate borrowers have not had the past year to acclimatise to higher interest rates. They have avoided the pain of adjusting their budget for higher loan repayments but will be on the receiving end of the Reserve Bank’s 12 cash increases over the past year all in one huge hit,” Canstar finance expert Steve Mickenbecker told The Australian. “To help cope with the inevitable higher repayments, any borrower with a fixed period still to run should be making the necessary adjustments now and be putting themselves ahead with extra repayments.”
Mickenbeker also encouraged borrowers to inquire with their lenders about the rates they can expect when their fixed term ends.
“There will almost inevitably be better deals available with your current lender or a competitor. Now is the time to market yourself around,” he said. “Refinancing into one of the lowest interest rate loans will ease the higher repayment burden and is a must for every borrower. It won’t save borrowers altogether from repayment pain, but it will provide hundreds of dollars that won’t have to be found elsewhere in the family budget.”
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