With two thirds of low rate fixed interest rate loans rolling into standard variable interest rates this year it would be wise to start preparing now.
Here is your action plan to start preparing for higher home loan repayments when your fixed term ends.
1.Take action on your loan
The first step to prepare for increased mortgage repayments is to be proactive about your loan WELL BEFORE your fixed term ends.
If you allow your loan to roll into your lender’s standard variable rate, you may not be offered the most competitive deal available. This is because:
- lenders often save their cheapest rates to entice new customers
- your lender is not going to advise you that there are cheaper options with their competitors.
Instead of leaving your loan to revert, look over your options carefully. It could be worthwhile to do some research and have a chat with us to see what type of loan – fixed, variable or split – will meet your needs and help keep your repayments down.
2. Reach out to a specialist (us) for help
We recommend you talk to your finance specialist at least three months before your fixed rate term ends.
Talking to a specialist about your home or investment loans can help you decide what action is appropriate for your personal circumstances. Our role is to conduct a review of your existing finance arrangements and examine your options.
It may also pay to speak with a financial adviser about your thoughts and decision to ensure it will be the appropriate financial decision for you.
3. Review your household budget
Reviewing your household budget before your fixed rate ends could help you find ways to save money as your home loan repayments start to increase.
If you can find room in your budget to cut back your spending, NOW may be the time to do so in preparation for your higher mortgage repayments.
It might be difficult to save on everyday expenses like groceries and petrol while the cost of living is high, but you could look into your electricity, internet and insurance providers to negotiate a better deal, especially if you haven’t recently compared offers. There could be some good reasons to switch now.
You could also look to your discretionary spending on expenses such as takeaway food, entertainment, gifts and impulse buying to free up space in your budget.
4. Make extra repayments
If you’re on a fixed rate loan that allows extra repayments, it could be worth using this feature before your fixed term ends.
Extra repayments up to the fixed term cap can give you a buffer when rates rise because you will have repaid more of your home loan. This could be useful if future rate hikes make it difficult for you to make your monthly repayments.
Allow us to negotiate with your lender
If you sit back and do nothing when your fixed rate term ends, you’ll end up paying whatever the lender charges you.
To put this into perspective, let’s say you just completed a five year fixed rate period on a $500,000 home loan at a 5.05% rate. The loan term is 30 years.
Say the current lowest market rate is 4.34%, but your lender charges you 4.84% without providing any other additional benefits. Although that’s only 0.5% more than competitive interest rates, you would end up paying something like $39,307 more in the 25 years remaining on the loan term!
This is why you need to make pricing requests and compare deals with other lenders. As your finance specialist we can help you with both services so you don’t get overcharged.
Will a new fixed rate meet your needs?
Fixed rates aren’t for everyone. Don’t be dazzled by the seemingly lower interest rates. Don’t fix your home loan if:
- You are going to sell your property within the fixed period.
- You want to make large amounts of extra repayments.
- You’re planning on refinancing your home loan.
- You want to renovate or build a new home, in which case you’ll likely have to refinance.