What to Review Before Your Fixed Home Loan Rate Ends

Before your fixed home loan rate ends, review the interest rate that will apply afterwards, expected repayments, loan features, remaining balance and any fees associated with changing loans. You can also compare staying with your existing lender, selecting another fixed term or refinancing, where available. The most suitable option depends on your circumstances and lender requirements. Reviewing the loan before the fixed period expires can give you time to understand your options, but a lower rate, repayment or refinancing outcome cannot be guaranteed.

What Happens When a Fixed Home Loan Rate Ends?

A fixed-rate home loan provides an agreed interest rate for a specified period rather than necessarily for the entire life of the mortgage. When that fixed period ends, the loan will generally move to a variable rate specified or determined under the loan agreement unless another arrangement has been made. The applicable rate and resulting repayment may differ from what you were paying during the fixed period. Your lender should provide information about what happens when the fixed term expires. Reviewing this information before the expiry date can help you understand how the change may affect your loan.

Check the Rate That Will Apply After the Fixed Period

One of the first things to review is the interest rate expected to apply once your fixed term finishes. Do not assume the rate will remain close to your existing fixed rate. The applicable variable rate will depend on your lender, loan product and prevailing pricing. Understanding the new rate allows you to estimate how repayments may change and compare the existing loan with other options that may be available. Interest rates can change, so any comparison should use current information rather than relying on rates that were available when you originally fixed the loan.

Estimate Your New Repayments

If your interest rate changes when the fixed period ends, your required repayments may also change. The size of the difference will depend on factors such as the outstanding loan balance, remaining loan term, repayment type and new interest rate. Reviewing the potential repayment before the fixed term expires can help you understand how it may fit within your household budget. Repayment calculations are estimates unless confirmed by the lender and can change if rates or loan details change.

Check Your Remaining Loan Term

It is also worth reviewing how many years remain on your mortgage. If you refinance, the proposed new loan may have a different repayment term. Extending the debt over a longer period can potentially reduce individual repayments but may increase the total interest paid over time, depending on the interest rate, fees and repayment pattern. Comparing loans using repayments alone may therefore provide an incomplete picture.

Review Your Current Loan Features

The end of a fixed-rate period can be an opportunity to consider which loan features you actually use. Depending on the loan, features might include an offset account, redraw facility, additional repayment options or the ability to split the loan between fixed and variable portions. Features can have conditions, fees and limitations, and not every borrower requires the same functionality. Rather than assuming that more features automatically make a loan better, consider the costs and conditions associated with the features available.

Consider Whether You Want to Fix Again

Your lender may offer the option of fixing the interest rate for another period, subject to available products and eligibility. A fixed rate can provide greater certainty about the applicable interest rate during the fixed term, but it can also involve restrictions. These may include limits on additional repayments or potential break costs if the fixed loan is repaid or changed before the fixed period expires. Future interest rate movements cannot be predicted with certainty, so choosing between fixed and variable lending involves considering the characteristics and risks of each structure rather than assuming one will always cost less.

Review Your Property Value and Equity

If you are considering refinancing, your current property value may affect the options available. Equity is broadly the difference between the property’s value and the amount owed against it. A lender will generally rely on its own acceptable valuation when calculating the loan-to-value ratio, or LVR. If your LVR is above certain lender thresholds, additional requirements or costs such as lenders mortgage insurance may potentially apply. A particular property valuation cannot be guaranteed.

Check Whether Your Financial Circumstances Have Changed

Your circumstances may be different from when you originally took out the fixed-rate loan. Income, employment, household expenses, dependants and existing debts can all change over several years. If you apply to refinance, the new lender will generally assess your current financial position rather than relying on the assessment completed when the original loan was approved. This means having maintained repayments on your existing mortgage does not guarantee approval for a new loan.

Check the Costs of Refinancing

Moving to another lender can involve costs. Depending on the existing and proposed loans, these may include discharge fees, application charges, valuation fees, settlement costs or other expenses. If you refinance before the fixed period actually expires, break costs may also apply. Potential savings should therefore be considered alongside the costs of changing loans. A lower advertised interest rate does not necessarily result in a lower overall borrowing cost.

Check for Break Costs Before the Fixed Term Ends

If you want to refinance or repay a fixed-rate loan before its expiry date, your existing lender may apply a break cost under the loan agreement. The amount can depend on the loan, the remaining fixed period and market conditions, among other factors. Break costs can sometimes be significant, so borrowers considering an early change should obtain an up-to-date figure from their lender before proceeding. Once the fixed period has ended, the applicable arrangements may be different.

Compare More Than the Interest Rate

Interest rates are important, but they are only one component of a home loan. When comparing options, consider relevant fees, loan features, repayment structure, remaining or proposed term and the estimated overall cost of borrowing. Where a comparison rate is applicable, it can provide additional information about certain costs associated with the loan, although it does not include every possible fee or individual circumstance.

Do You Have to Refinance When Your Fixed Rate Ends?

No. Refinancing is not automatically required when a fixed-rate period expires. You may be able to remain with your existing lender under the loan’s applicable post-fixed arrangements. Depending on what is available, you might also discuss another fixed term, a different product or another loan structure with your existing lender. Refinancing to another lender is a separate option and requires a new application and assessment.

The end of a fixed home loan rate is an opportunity to review how your mortgage is structured before the next stage of the loan begins. Start by checking the rate and repayments expected after the fixed term, your remaining balance and term, loan features and current financial circumstances. If you are considering refinancing, also consider your equity position, lender requirements and the costs associated with changing loans. There is no single option that is appropriate for every borrower. Comparing the terms and costs of staying with your existing lender, fixing again or refinancing can help you understand the available choices before deciding what to do next.