Fixed-rate home loans can help borrowers feel a sense of stability and certainty with regard to monthly repayments. However, when fixed rate loan terms come to an end, it’s important to understand the potential impact it may have on your finances. In order to avoid any potential surprises that could cost you money in both the long term and short term, you should take action before your fixed rate loan term comes to an end.
You may not be aware that most lenders will automatically convert home loans over to a standard variable rate home loan at the end of the fixed term. In the current market, the standard variable rate will be higher than the interest rate you are used to paying, which can lead to significant increases to your loan repayments.
This can be a shock to your budget and put you under serious financial stress. To avoid this, it’s important to take action before your fixed rate term ends. You may choose to switch to a new loan or renew your fixed-rate loan to lock in a new rate that is suitable for your financial circumstances. This is a big decision and could have a big impact on finances well into the future. So how do you ensure you are making the right decision?
Here are the steps you should consider when your fixed-rate home loan term is coming to an end:
What to do before your fixed rate loan term ends
- Contact your mortgage broker or finance expert
When your fixed-rate home loan term is coming to an end, it’s important to seek advice from your broker or finance expert so that they can provide you with all the information you need and help you understand your options.
Your broker can assess your current financial situation and determine what your options are. From there, they can provide you with a clear understanding of what happens when your current rate term ends, and what the new interest rates and repayment amounts are likely to be. They can also help you understand the benefits and risks associated with different options, such as switching to a variable-rate loan or switching to a different lender.
Your broker or finance expert can also help you explore different loan products and identify the ones that best suit your needs. You should feel comfortable that you understand the features of each loan and what they mean for you. Most importantly, your broker can also help you with the loan application process, including the documentation you need to provide and the steps involved in the loan application process.
- Review your current home loan
It’s important for you to review your loan when your fixed rate period is ending. Take the time to look at your current loan’s features, fees, and the interest rate as this will help you determine whether your current loan is still suitable for your current needs, or if you would be better switching to a different loan.
- Consider the options available to you
There are several options available to most borrowers when your fixed-rate home loan term is ending. You can choose to:
- Refinance with another lender and attract a new loan altogether
- Switch to a variable-rate home loan with the same lender
- Renew your fixed-rate loan with the same lender
Consider each option carefully and weigh up the benefits and costs before making a decision. Read more about deciding between fixed and variable rate loans here.
- Shop around for different lenders and loan types
If you’re considering refinancing or switching to a new loan, it’s important to shop around and compare different loan products. Look at the interest rates, fees, and features of different loans to find one that suits your needs.
When you’re considering refinancing or switching to a new loan, it’s important to do your research and compare different loan products from various lenders. This means looking beyond the advertised interest rate and taking a more comprehensive view of the loan’s fees and features.
For example, some loans may have lower interest rates but come with higher ongoing fees that could end up costing you more over time. On the other hand, some loans may have higher interest rates but offer a range of features and benefits that are important to you, such as an offset account or the ability to make extra repayments without penalty.
To make an informed decision, it’s important to compare the total cost of each loan over the life of the loan, including all fees and charges. This will help you understand the true cost of each loan and make a more accurate comparison.
It’s also important to consider your financial goals and circumstances when choosing a loan. For example, if you plan to pay off your loan early, you may want to look for a loan with a flexible repayment structure and no early repayment penalties. If you’re someone who is looking for more certainty, you may prefer to stay with fixed-rate loan and lock into a new term
By taking the time to understand and compare different loan products, you can find a loan that suits your needs and helps you achieve your financial goals.
- Prepare yourself for the future
Once you’ve decided on your immediate next steps, it’s important to prepare for the longer term. Make sure you understand the terms and conditions of your new loan and create a budget to ensure you can comfortably make your repayments. With all the talk of interest rates and the expectations set by the RBA to prepare for more rate rises in the future, it’s vital that you understand your current situation and what your commitments may look like in the future.
Contact your broker or finance expert to help you review your loan, consider your options and prepare yourself for the future. By taking these steps, you can feel confident that you have made the right decision and have the right loan for your needs.
