What Happens When Your Fixed Rate Expires?

Understanding What Happens When Your Fixed Rate Expires

When you take out a mortgage in Australia, you may choose a fixed interest rate for a specified period. While fixed rates can provide stability and predictability in your repayments, they do eventually expire. Understanding what happens next is crucial for making informed financial decisions regarding your home loan.

What is a Fixed Rate Mortgage?

A fixed rate mortgage is a loan where the interest rate remains the same for a predetermined period, typically ranging from one to five years. This means your monthly repayments will not change during this time, which can be beneficial in budgeting your finances.

What Happens When Your Fixed Rate Expires?

Once your fixed term ends, your mortgage will usually revert to a variable interest rate. This transition can lead to changes in your monthly repayments, depending on the current market conditions and the lender's standard variable rate. Here’s a breakdown of what to expect:

#### Reversion to Variable Rate

• **Standard Variable Rate**: After your fixed term ends, your loan will typically switch to your lender's standard variable rate unless you choose to refinance. Variable rates can fluctuate based on the Reserve Bank of Australia’s cash rate changes, impacting your repayments.
• **Potential Cost Increase**: The standard variable rate might be higher than your previous fixed rate, leading to increased monthly payments. It’s essential to check what the new rate will be and how it compares to your previous rate.

#### Options After Expiration

When your fixed rate expires, you have several options:

1. Stay with the Lender: If you choose not to refinance, your loan will automatically transition to a variable rate. Review your lender’s rates and see if there are any fees associated with staying.

2. Refinance: You may consider refinancing your mortgage to a new fixed rate or a different lender. This can offer you a chance to secure a lower interest rate or more favourable loan terms.

3. Negotiate with Your Lender: Contact your lender to discuss your options. They might offer you a new fixed rate or lower your variable rate to retain your business.

4. Split Loan: A split loan allows you to have part of your mortgage on a fixed rate and part on a variable rate. This can provide a balance between stability and flexibility.

Considerations When Your Fixed Rate Expires

#### Assess Your Financial Situation

• **Budget**: Review your budget and assess your capacity to handle potentially higher repayments if you revert to a variable rate.
• **Market Conditions**: Look at current interest rate trends. If rates are rising, locking in a new fixed rate might be beneficial.

#### Shop Around

• **Compare Offers**: Take the time to compare different lenders and their offerings. This can help you find a more competitive rate that suits your financial situation.
• **Consult a Mortgage Broker**: A mortgage broker like Timothy Yang can assist you in navigating your options and finding the best deal for your circumstances.

FAQs

#### What is the difference between a fixed and a variable interest rate?

Answer: A fixed interest rate remains constant for a specified period, providing stability in monthly repayments. In contrast, a variable interest rate can fluctuate based on market conditions, making your repayments subject to change. Borrowers may choose fixed rates for predictable payments and variable rates for potential lower costs if market rates decrease.

Final Thoughts

Understanding what happens when your fixed rate expires is vital for managing your mortgage effectively. Take the time to explore your options, assess your financial situation, and consider the implications of reverting to a variable rate. Whether you decide to stay with your current lender or explore refinancing, being proactive can save you money in the long run.

If you have questions about your specific situation or need personalised advice, feel free to reach out to Timothy Yang at Northmark Finance. We are here to help you navigate your mortgage options with confidence.

*Disclaimer: This blog post is general information only and does not constitute financial advice. Please consult a qualified professional for personalised guidance tailored to your specific circumstances.*