Fixing rates hit a record high halfway through last year as borrowers took advantage of record low rates.
However, many of these rates are coming to an end, with the peak of fixed home loans due to expire between July and December next year, according to data from .
A total of $99 billion worth of mortgages are coming off a fixed rate in the second half of 2023 from Australia’s two biggest banks alone, CBA and Westpac.
Many of these borrowers could be looking at revert rates of over 7 per cent if the RBA cash rate rises another 1.25 percentage points to 3.85 per cent.
RateCity research director Sally Tindall said one simple way fixed-rate customers could prepare, and make sure they could afford the huge jump, was to start paying extra now.
How to prepare for the fixed-rate cliff
Work out what your new monthly repayment is likely to be when you come off your fixed rate
Start making that higher repayment now to see if your budget holds up - this will help you build a buffer while your rate is low (note, some banks have caps on extra repayments - see below)
Can’t afford it? Make cutbacks to your spending now while you have time and talk to your bank early about your options
How much you could save by making higher repayments now
RateCity analysis found if an owner-occupier fixed their $500,000, 25-year loan in July 2021 for two years on the average Big Four bank rate, they would be paying approximately 1.94 per cent.
When their fixed term ends in July next year, they could be facing an average revert rate of 7.18 per cent, if Westpac and ANZ’s cash rate forecasts are realised.
If they don’t negotiate their rate at this point, their repayments would rise by 65 per cent.
Assuming someone did renegotiate and landed on a rate of 6 per cent, their monthly repayments would still rise by $1,028. That’s still a 49 per cent rise in repayments.
However, if the person started making the same higher repayment now, by July 2023 they could build up an $8,267 buffer in their home loan in extra repayments and interest saved.
By keeping that money in their loan until the end, they could potentially save $17,639 in interest over the life of their loan and pay off their debt nine months early.
“People on a fixed rate shouldn’t put their heads in the sand, but instead take action while they can,” Tindall said.
“Instead of dreading the day your fixed rate ends, consider testing out your budget now by making these higher repayments while your rate is still low.”
Tindall said this would not only bring you comfort but also help build up a solid buffer for emergencies.
“If the numbers don’t add up, then you’ll have time on your side to start making cutbacks before your interest rate rises,” she said.
“If your plan is to put the extra money into your home loan, be aware of any caps your bank might have on additional repayments in the fixed rate period.”