Is your fixed rate ending soon? If so, you and many Aussies are bracing for an impending phenomenon known as the “mortgage cliff”. Picture this: a staggering 880,000 fixed-rate loans, originally secured at rock-bottom interest rates, are set to undergo a seismic shift, transitioning to higher variable rates in 2023. It’s a financial whirlwind that cannot be ignored.
According to the Reserve Bank of Australia (RBA), this year alone, approximately $350 billion of fixed-rate credit—representing half of all fixed rate mortgages—will reach their expiration date, triggering this mortgage cliff.
For homeowners with fixed rate mortgages: are you prepared for when this happens?Your fixed rate period expiring could be your opportunity to proactively prepare and navigate the changing tides of the mortgage market. In this blog, we present you with the top 5 financial tips to arm yourself against the mortgage cliff and empower you to make informed decisions.
First off, what is a mortgage cliff?
A fixed rate mortgage typically has a specific term during which the interest rate remains constant. At the end of the fixed-rate term, there is a “fixed rate mortgage cliff” where the mortgage transitions to variable interest rate unless a new fixed rate is locked in. This transition can result in a change in the interest rate and monthly payments for the borrower.
The “mortgage cliff” in the context of fixed-rate mortgages refers to a significant transition period in the Australian mortgage market.
Mortgage cliff Australia 2023:
The impact of this mortgage cliff this year will be most keenly felt between now and September, as one-third of fixed-term credit is set to expire during this period. This means that households affected by these expiring mortgages will have to adjust to absorbing the 400 basis point increase in the cash rate over the past year.
The mortgage cliff presents a challenge for borrowers as they transition from the stability of fixed-rate loans to potentially higher variable rates. At Q Financial, we are committed to being proactive in assisting our clients during this period, exploring refinancing options, negotiating with lenders, and providing guidance to navigate the changing interest rate landscape.
Are you mortgage cliff-ready? Here are our top 5 tips
1. Review your home loan and your financial situation
Start by reviewing your existing home loan in detail. Carefully examine the terms and conditions of your fixed-rate mortgage agreement, paying particular attention to the expiration date and any potential penalties associated with early repayment or refinancing.
In addition to reviewing your home loan, make a thorough evaluation of your financial situation. Assess your current income stability, expenses, and savings. Consider how an increase in mortgage payments resulting from transitioning to higher variable rates might impact your overall financial health. Analyse your budget and make adjustments where necessary to ensure you can comfortably manage the potential changes.
2. Consider refinancing your home loan
When facing the fixed rate mortgage cliff, you might want to explore refinancing opportunities. Begin by researching and comparing different lenders and their offerings. Look for lenders who provide competitive variable rates and terms that align with your financial goals. Take into account factors such as interest rates, loan features, repayment options, and associated fees.
Before proceeding with refinancing, consider any associated costs, such as application fees or discharge fees from your current loan. Calculate the break-even point, where the cost of refinancing is recouped through the savings generated by the new loan. If the potential savings outweigh the costs and align with your long-term financial goals, refinancing can be a powerful tool in preparing for the fixed rate mortgage cliff.
Read: Switching home loans from one bank to another: should I do it?
3. Keep yourself educated
Stay informed about interest rate trends in Australia by monitoring updates from the Reserve Bank of Australia (RBA) and reliable financial sources. By being aware of potential changes in interest rates, you can anticipate the impact on your mortgage repayments and make informed decisions about refinancing or negotiating with lenders.
Follow reputable financial news sources, subscribe to newsletters or alerts, and regularly check the RBA’s website for updates on monetary policy and changes to the cash rate. This way, you can anticipate potential changes in interest rates and be prepared for how they might affect your fixed rate mortgage when it transitions to a variable rate.
4. Prioritise debt reduction
Take stock of all your outstanding debts, including credit cards, personal loans, and any other liabilities. Evaluate the interest rates, repayment terms, and total amounts owed for each debt. Identify high-interest debts that are costing you more in interest payments. These debts should be your primary focus for reduction.
Once you have assessed your debt situation, allocate any available extra funds towards debt repayment. Review your budget and identify areas where you can cut back on expenses to free up more money for debt reduction. This might involve reducing discretionary spending, renegotiating bills or subscriptions, or finding ways to increase your income.
Consider using windfalls such as tax refunds, bonuses, or unexpected income to make extra payments towards your debts.
5. Seek professional advice
A mortgage broker (like myself) has in-depth knowledge of mortgages, interest rates, and economic factors specific to Australia. I can assess your current mortgage, review your financial situation, and help you explore refinancing options. A broker can also negotiate with lenders on your behalf to secure competitive rates and favourable terms. This expertise will be particularly valuable during the fixed-rate mortgage cliff, as I can help you navigate the transition to variable rates and ensure you make informed decisions.
Prepare for the mortgage cliff with Q Financial
Here at Q Financial, my team and I can provide a holistic view of your financial situation, considering factors beyond just the mortgage. We can help you evaluate your overall financial health, identify areas for improvement, and offer strategies to strengthen your financial position.
If you’re ready to play a more proactive role in managing your home loan, we’re only a chat away! Click the button below to enquire about Q Financial services and to speak with our team.
