If you're a homeowner in Australia, this is an article you're going to want to read in this current climate. Fixed interest rates have been low for some time now, which has made it easy for homeowners to lock in a really low rate that they're comfortable with. But as the Reserve Bank of Australia (RBA) continues to signal for increased rates, mortgage holders who've fixed their rates will roll at expiry from their current low rate and be shocked with a much higher interest rate than they may be prepared for! So, what can you do? In this article, we'll go over the fixed rate cliff and what you can do to prepare for it.
The fixed rate cliff is a term used to describe what happens when homeowners with a fixed-interest rate mortgage are faced with rising interest rates or have been on a low rate and their term expires leaving them unable to afford the new higher market rates. Essentially, they'll be stuck with a higher mortgage payment than they would have had if they had a variable rate mortgage all along, which had adjusted with the RBA cash rate. And with the RBA continually signalling that rates are going up; the fixed rate cliff is set to be a reality for many Australians.
So, what can you do to prepare? The first step is to check your current mortgage terms. If you're on a fixed rate now, see when it expires and what your options are. This will give you an idea of how much time you have to prepare for the fixed rate cliff. If you're on a variable rate, you're not directly impacted by the fixed rate cliff, but you'll still want to be aware of how rising interest rates can impact your mortgage payment.
Next, consider your financial situation. If you're in a good position to refinance, now may be a good time to start looking into your options. Refinancing to a variable rate mortgage may allow you to benefit from lower interest rates now and protect yourself from the fixed rate cliff. However, refinancing does come with some costs including a fixed rate break cost so make sure you do your research first.
If refinancing isn't an option, you can still take steps to prepare for the fixed rate cliff. Start by looking at your monthly budget and see where you can cut back. This will help ensure that you'll have enough funds to cover a higher mortgage payment if you're stuck on a fixed rate. You may also want to consider renegotiating with your current lender to see if there's any flexibility in your current mortgage terms.
Another option is to start saving now. Even saving a little bit extra each month can help prepare you for the fixed rate cliff, and give you a cushion when the higher mortgage payments start coming in. It’s a great idea, if possible, to save the amount the extra variable interest rate loan will cost you monthly if you can.
The fixed rate cliff is a reality for many homeowners, but there are steps you can take to prepare. Whether it's checking your current mortgage terms, refinancing, cutting back on expenses, or saving more, being aware and proactive can help you avoid the worst of the fixed rate cliff. Don't let it catch you off guard – start planning now and you'll be in a better position when the time comes. Contact SFE Loans if you'd like some guidance and advice on how to avoid being caught of guard.