My fixed rate term ends in 2023? What next?

18 Jan 2023

If you are in the one-third of home owners who were in the eyes of the Reserve Bank of Australia “well placed” to absorb the impact of rising interest rates - then brace yourselves for more increases this year, the next most likely in the first quarter. It will take the cash rate to a possible 3.35 per cent up 0.25 per cent from the current official cash rate of 3.10%. We haven’t seen this kind of increase since 2012 when the rate was 3.25%



With the bulk of low fixed-rate loans due to expire in 2023 and 2024, about half of those coming into the new variable market will face increases in their repayments of at least 40%. For those whose fixed loans expire in the middle of this year, the Reserve Bank estimates a median increase of about $650 a month in repayments, or a 45% increase. February 7 is the first Reserve Bank Board Meeting – Interest Rate Decision, with the announcement being made at 2.30pm AEST.

Homeowners who currently have fixed interest loans that will expire this year are encouraged to speak to their lender or a mortgage broker to see if they can secure a better deal once their fixed rate ends or if you can, make extra repayments now so that you can be ahead of the game when rates rise.
If you choose to re-fix your home loan for one to five years, your lender will have a method for you to follow. In most cases, they'll send you a pre-expiry offer, which you can accept before your current fixed rate term ends. Your lender will provide instructions on what to do. Locking in your rate has definite benefits, especially if the RBA increases the rates further throughout the year, you’ll know precisely what your repayments will be. On the other side of the coin, if interest rates fall, your rate is set and you will have to continue paying the agreed fixed rate at the time of renewal.

Benefits of a fixed rate home loan
  1. Easy to budget – monthly repayments are always the same
  2. No prepayment penalties
  3. Good for long-term homeowners
Drawbacks of a fixed rate home loan
  1. Higher monthly repayments
  2. May be harder to qualify for
  3. May not be as good for short-term homeowners
Can I extend my fixed rate period?
No. Once your fixed rate term has expired, your lender will provide you with a new fixed rate offer. Lenders don’t extend fixed rate terms as the wholesale money market, where your lender borrows the money for your fixed rate period changes daily. When your fixed period has expired, the wholesale interest rate could be significantly different. 

How does inflation affect the decision by the RBA to raise interest rates?
The rate of inflation is the main factor the Reserve Bank of Australia has been taking into consideration when deciding how fast and far to lift interest rates.
Inflation rose again in November 2022, according to the latest Australian Bureau of Statistics (ABS) figures, prompting forecasts of further interest rate hikes in 2023.
The monthly consumer price index (CPI) rose 7.3 per cent over the year to November, which was back up from 6.9 per cent in October to the same level recorded in September.
Housing, which incorporates the cost of building a new home and rental prices, was one of the biggest contributors, with a gain of 9.6 per cent over the past year according to ABS head of prices statistics, Michelle Marquardt.
As house values are on the decline across Australia, it would be wise to get an up-to-date market appraisal on your property. If you were relying on your property increasing in value over time but you’ve suddenly found yourself in a position where the market value of your home is worth less than what you owe, this is called negative equity.
How to reduce negative equity?
If you can, it’s a good idea to reduce your negative equity, so you’re in a better position if the time comes to sell or refinance your home. Here are four tips to help you get back in the black:
  1. Make extra payments on your mortgage – by paying off your mortgage faster, you’ll have a lower balance owing when you sell or refinance. You’ll need to check with your lender that you can make extra payments on your loan without having to pay any fees.
  2. Arrange a valuation – it’s hard to know what your equity position is if you don’t know what your home would sell for in today’s market. Arranging an independent valuation can give you a better idea of the difference between the value of your home and the balance of your mortgage.
  3. Avoid redrawing from your mortgage – if you have a redraw facility for your home loan and have paid extra onto your mortgage in the past, try to leave the funds where they are. If the property market is in a slump, getting ahead on your mortgage is even more important.
  4. Do some renovations – making simple improvements can give your home a lift in value, potentially reducing the gap between your mortgage balance and the sale price of your home. Focusing on improvements that buyers want will add the most value.
For expert advice, contact our Peard Finance team who are ready to answer all of your finance questions.

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