Are you one of the thousands of Australians feeling anxious about your fixed interest rate coming to an end and what that might mean for your mortgage?
Choosing a fixed or variable interest rate for your home loan often comes down to how familiar you are with the interest rate cycle, and what the market is up to. With the world feeling slightly more daunting than usual – particularly if it’s your first big foray into a large scale loan – you should be paying extra attention to your financial commitments and how these changes could potentially impact you and your mortgage.
As such, Australians opted to fix their interest rates in record numbers when pandemic induced record lows were introduced to keep the economy moving. However, that era is now very much over, and the Reserve Bank Of Australia has indicated that interest rates will continue to rise until inflation comes back down to a manageable level. If your fixed interest rate is reaching the end of its term and you’re feeling anxious about the future, what are your options?
How To Manage The End Of A Fixed Interest Rate Period
As many people already know, the primary benefit of a fixed rate home loan is that it gives homeowners the certainty of knowing that your repayments won’t change over the fixed interest period, which is usually between one and five years.
Should the interest rates rise, having a fixed rate loan means you won’t have to pay more – that is, at least until your fixed term expires. As it’s now been one to two years since fixed interest rates were advertised as low as 2%, it’s simply no longer possible to enter a new term contract with the same expectations.
As many lending institutes are now offering fixed interest rate loan products with shorter terms for a higher amount, such as one year at a fixed rate of 5% or more, it’s getting harder for homeowners to find a solution that best fits their overall financial position. Quite simply, the option of renewing at the same terms just isn’t on the cards anymore, so what do you do?
Make An In Depth Budget – Before you make any major decisions linked to interest rates and what type of loan product may be the best choice for you, start by undertaking a careful analysis of your finances via a budget. This way, you can calculate how much extra you can afford to pay off your mortgage without landing yourself in a state of financial stress.
Meet With A Mortgage Broker – Approaching a new fixed term interest rate term without the valuable guidance of a mortgage broker is a bit like going in blind. As mortgage brokers are licenced professionals with access to a wide variety of loan options and interest rates, it pays to use one to help you shop around.
Consider A Split Loan – In simple terms, split loans are a home loan or mortgage product that is ‘split’ into multiple loans with different interest rates. One of the most common examples used in today’s market is a home loan that has a variable interest rate component, with the remaining amount linked to a fixed interest rate.
Most people quite rightly shop around for a great loan package with low interest rates before they commit to a mortgage, particularly first home buyers. Yet, what they don’t know is that they actually get the interest rate on offer when their loan is advanced – not the rate at the time that they apply. To avoid this financial conundrum, be sure to speak with your mortgage broker about rate lock, and how the concept could protect you against rising interest rates.
Your Guide For Navigating The World Of Home Loans
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in this newsletter. It contains general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.
Credit Representative 499652 is authorised under Australian Credit Licence 389328.
