If you locked in a low fixed-rate home loan during the golden days of 2021, there’s a good chance your bargain rate is coming to an end soon — and for millions of Australians, that’s going to sting. The jump from a low fixed rate to today’s higher variable rates can feel like financial whiplash. But with the right prep, it doesn’t have to.

Don’t panic — just get prepared

For years, interest rates only seemed to head one way: down. Then the RBA started lifting the cash rate again, and the reality check hit hard. Economists expect the cash rate to keep rising, which means borrowers who locked in ultra-low deals a couple of years ago will face a sudden shift when their term ends.

A fixed rate of around 2.2% in 2021 could easily roll over to something above 5% in 2023. It’s understandable to feel nervous — but the good news is you’ve already enjoyed savings, and you have options.

Think of your upcoming fixed-rate expiry as a chance to reset, review, and find your next best deal. This is where a good relationship with a broker really pays off. We can run the sums, talk through your choices, and keep you ahead of the curve.

Refinance, re-fix, or split?

Once your fixed term ends, your loan automatically moves to what’s known as a “revert rate”. The downside? It’s usually one of the lender’s higher variable rates. The upside? You’re completely free to shop around.

Your options include:

• Moving to a lower variable rate (with your current lender or a new one)
• Fixing again for another term
• Splitting your loan between fixed and variable
• Even structuring multiple fixed periods (for example, part fixed for two years, part for five)

In places like the UK, where inflation has gone wild, some borrowers are breaking fixed loans early and paying exit fees just to secure a new fixed rate. In some cases, that actually makes financial sense.

As of July, the average variable rate was around 3.85%, while a two-year fixed rate was closer to 4.8% (Mozo). No surprise, then, that ABS data shows refinancing in Australia jumped 20% among owner-occupiers.

Try a budget stress-test

If you’re worried about the jump in repayments, try “future-proofing” your budget now. Estimate what your new repayments will be once your fixed rate ends — and start paying that amount immediately.

A couple of things to keep in mind:

• Some fixed loans limit how much extra you can pay without fees.
• If you can’t make extra repayments, put the difference into a savings account. When your rate changes, you’ll have a helpful buffer ready to go.

Using flexibility to your advantage

Variable loans come with features that can help soften the repayment shock. A few strategies to consider:

Pay fortnightly
It’s simple but effective. Paying the equivalent of your monthly repayment over two fortnightly payments means you’ll make the equivalent of one extra monthly repayment each year — shaving time and interest off your loan. Over 30 years, that can mean more than $100,000 in savings.

Use an offset account
An offset works like a regular transaction account, but the balance reduces the interest charged on your loan. Keep your cash sitting here and you’ll chip away at interest without locking your money away.

Beware the “mortgage prison”

Some borrowers may find refinancing harder than expected. Tougher lending rules and falling property values can make it more difficult to switch lenders.

APRA now requires banks to assess applications with a 3% buffer. If your borrowing was already tight under previous rules, or you haven’t been able to pay down your principal, you might struggle to pass the new test.

If your home value has dipped and your equity has fallen, your loan-to-value ratio may also climb above 80%, which means you could get hit with Lender’s Mortgage Insurance (LMI) to move lenders.

In these situations, staying with your current lender and negotiating can sometimes be the most realistic option.

Let’s talk through your next steps

Your situation is unique, and fixed-rate rollovers aren’t something to leave to the last minute. If your loan term is ending soon — or even within the next year — now is the time to explore your options.

It’s a fast-changing environment, and I’m here to help you make sense of it all and plan your next move with confidence.