As a home loan borrower, you may have taken advantage of cheap fixed home loan rates in Australia. However, when your fixed term ends, your loan will automatically switch to a variable rate. This change can impact your monthly payment, and it’s important to understand what to expect.
Fixed home loans in Australia are usually offered for a period of 1-5 years. During this time, your interest rate is fixed, meaning your monthly payment remains the same. This can be beneficial if you want to budget your expenses and protect yourself against interest rate hikes.
However, once your fixed term ends, your loan will automatically switch to a variable rate. This means your interest rate and monthly payment can change depending on market conditions.
The change in monthly payment can be significant, especially if you initially took out a fixed-rate loan with a low-interest rate. For example, if you have a $500,000 home loan with a fixed rate of 2% for 2 years, your monthly payment would be $2,148. Once the fixed term ends, your loan might switch to a variable rate of 6%, increasing your monthly payment to $2,998. This is an increase of $850 per month, or $10,200 per year.
To prepare for the change in monthly payment, it’s important to understand your options. Here are some steps you can take:
- Review your loan terms: Before your fixed term ends, review your loan terms to understand when the change will occur and what your new interest rate and monthly payment will be.
- Budget for the change: Once you know the new interest rate and monthly payment, adjust your budget to accommodate the increase. You may need to cut back on other expenses or find ways to increase your income to cover the additional cost.
- Consider refinancing: If the increase in monthly payment is significant, you may want to consider refinancing your home loan. Refinancing can help you secure a better interest rate and lower your monthly payment.
- Talk to your mortgage broker: If you’re struggling to make the new payment or are concerned about the impact of interest rate rises on your loan, talk to your mortgage broker. They can help you understand your options and work with you to find a solution that meets your needs.
A mortgage broker can also help you shop around for a better deal on your home loan. They have access to a wide range of lenders and can help you find a loan that suits your needs and budget. By working with a mortgage broker, you can be confident that you’re getting the best deal possible on your home loan.
In conclusion, the change in monthly payment when your fixed home loan matures in Australia can be significant, especially if your interest rate increases from 2% to 6%. It’s important to understand your options and plan accordingly to avoid financial stress. By reviewing your loan terms, budgeting for the change, considering refinancing, and talking to your mortgage broker, you can make the transition to a variable rate as smooth as possible.
CEO Origin Finance