Borrowers coming off fixed rates could see their mortgage repayments spike by up to 63 per cent as they are hit with the full force of the Reserve Bank’s (RBA) cash rate hikes.
Those who took out a two-year fixed-rate home loan in 2021 at a near rock-bottom 2.21 per cent rate, could see their repayments on a $500,000 loan skyrocket by $1,200 from $1,901 to $3,101 per month, according to Canstar, based on today’s average variable rate of 6.57 per cent.
It’s a similar story for borrowers who opted for a three-year fixed rate in 2020 and were locked into an average rate of 2.61 per cent. These borrowers will soon face a 53 per cent increase to their repayments, rising from $2,004 to $3,074 on a $500,000 loan.
Canstar finance expert Steve Mickenbecker said borrowers coming off fixed rates were facing an “unprecedented hit to their finances” with some interest rates tripling.
“Fixed-rate borrowers have not had the past year to acclimatise to higher interest rates. They have avoided the pain of adjusting their budget for higher loan repayments but will be on the receiving end of the Reserve Bank’s 12 cash increases over the past year all in one huge hit,” Mickenbecker said.
“To help cope with the inevitable higher repayments, any borrower with a fixed period still to run should be making the necessary adjustments now and be putting themselves ahead with extra repayments.”
The RBA estimates half of all fixed-rate home loans will expire this year, worth an estimated $350 billion. The problem could get worse if the cash rate continues to rise.
How to save $397 per month
Mickenbecker urged borrowers to check with their lender to see what rate they could expect when their fixed term ended.
“There will almost inevitably be better deals available with your current lender or a competitor. Now is the time to market yourself around,” Mickenbecker said.
“Refinancing into one of the lowest-interest-rate loans will ease the higher repayment burden and is a must for every borrower.
“It won’t save borrowers altogether from repayment pain, but it will provide hundreds of dollars that won’t have to be found elsewhere in the family budget.”
For instance, borrowers coming off a two-year fixed rate with an 80 per cent loan-to-value ratio could consider switching to the lowest variable rate of 5.24 per cent.
This would take repayments to $2,704 per month for a $500,000 loan. It would save the borrower $397 per month when compared to the average variable rate of 6.57 per cent and repayments of $3,101 per month.