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Fixed-rate cliff: 800,000 Aussies to be hit with $15,000-a-year cost

Aussies who took out a fixed rate before interest rates started rising are in for a major financial shock.

A composite image of a row of terrace homes and Australian money to represent the fixed rate cliff.
Aussies who fixed their mortgage rate during the pandemic are in for a rude shock. (Source: Getty / AAP)

An Aussie with the average-sized home loan of $585,000 who took out a fixed rate before interest rates started rising will be forking out $15,000 more per year very soon.

Someone who fixed their rate at around 2.29 per cent will be facing a rate hike of around 3.85 per cent when their fixed term expires.

Around 800,000 ultra-low fixed-rate loans were taken out by Aussies during the pandemic.

That would amount to additional repayments of around $1,250 a month, $15,000 a year, or $376,000 over the lifetime of the loan.

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For someone with a $1 million loan, those monthly repayments would jump by $2,147.

CEO of Lendi Group David Hyman said wallet shock was coming for Aussie families who would need to act fast if they want to ease the financial burden.

“Procrastinating ahead of a fixed rate expiring is the worst thing a homeowner can do in this higher-rate environment,” Hyman said.

“For a family staring down the barrel of an additional $15,000 in repayments per year, this 65 basis points could mean savings of up to $3,400 a year. In addition, most lenders are still offering $4,000 in cash back. There are immense savings to be made, simply by starting the conversation with a broker.”

Hyman said simply sticking with the same lender could see Aussies cop a major “loyalty tax”, paying far more than they should.

“A mortgage is the biggest expense for most Australians and, with interest rates unlikely to materially decrease soon, inaction is simply not an option,” he said.

How much more will my repayments be?

Home Loan Principal – 25 year mortgage

Monthly Repayments at Fixed 2.29 rate

Monthly Repayments at 6.14 rate

Monthly Difference in Repayments

$600,000

$2,628

$3,917

$1,288

$700,000

$3,066

$4,570

$1,503

$1,000,000

$4,381

$6,528

$2,147

What can I do to get on top of it?

Lendi’s tips for homeowners to take an active role in their home loans:

  • Refinance with cash back: A broker could assist with a lower rate on a cashback deal that can free up some cash for other expenses

  • Consider a redraw facility instead of offset: Many borrowers are not using offsets actively and pay an extra fee unnecessarily

  • Debt consolidation: consolidate existing debts into your home loan, especially given home loan rates are still cheaper than the average credit card, while at the same time add the same, higher credit card debt repayments into your home loan to help pay down your home loan faster

  • Negotiate with your lender: if you’re having trouble doing this but don’t want to switch, a broker can look at the same lender refinance for you to help remove the hassle.

  • Review your total income: If you’re a worker who receives bonuses or commission, or have a side hustle that earns extra income, ensure you are refinancing at a time when you can prove your total annual income to increase borrowing power.

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