If your fixed rate loan is ending in 2023, you may face a significant interest rate increase. The Reserve Bank has increased the cash rate by 3.35 per cent since May 2022. Most lenders have passed that rate on in full with some having increased it even more.
More interest rate increases are forecast for 2023 as the Reserve Bank attempts to bring Australia’s rising inflation rate under control. This means that current fixed rates in the market are higher than variable rates.
Read on to find out how you could be affected and what you should do if your fixed rate loan is ending this year.
Increased interest rates and your repayments
If you took your fixed rate loan out more than a year ago, it will likely have been at an interest rate less than 2.5 per cent. Depending on the fixed term, rates are likely to be around 5.5% pa or higher. The best variable rate is around 4.75 per cent, but there are also plenty of higher rates out there.
The table below shows how repayment amounts increase for a $750,000 loan taken out at 2.5 per cent and some different market rates that are currently available. It assumes there are 20 years remaining on your loan.
| Amount | Monthly Repayments | Monthly Repayment Increase | |
| Current fixed loan at 2.5 per cent | $750,000 | $3,975 | – |
| Refinance at 5.5 per cent fixed | $750,000 | $5,159 | $1,184 |
| Refinance at 4.75 per cent variable | $750,000 | $4,847 | $872 |
You can use MoneySmart’s repayment calculator to estimate your monthly repayments for different loan amounts at different interest rates over different loan terms.
What to do before your fixed rate loan ends
There are 3 broad options and the right option for you depends on your individual financial situation, as well as future market rate movements.
Option 1: Revert to a variable rate loan with your current lender
Your fixed rate loan will most likely automatically revert to your lender’s current variable rate when your fixed term expires. It is only a good option if your lender has the lowest rate in the market. However, this is highly unlikely as lenders tend to offer discounted rates to new borrowers, not existing borrowers.
Option 2: Take out another fixed term with your current lender
After the fixed term matures you can request another fixed term from your current financier. It is important to note that the fixed rate you get will be the rate available on the date of roll over, which may be different to what they are advertising today. Some banks will however allow you to ‘lock’ todays rate in, for a fee.
Option 3: Refinance with a new lender
Refinancing with a new lender gives you the opportunity to explore the market to find the most discounted rates available for new borrowers.
This can be a good option if you can refinance to the lowest possible rate. There can also be some potential cash bonuses depending on the bank. Make sure that you consider any lender fees when deciding whether or not to refinance with another lender.
It is important to also be mindful of features you currently use and compare like for like lending products. Alternatively, see if more money can be saved by forgoing features you do not need.
How we can help
Brett Elliot is our Lending & Finance Principal at Wilson Pateras and he can help you to explore your options. Book a no-obligation meeting with Brett before your fixed rate loan expires. He will take the time to understand your specific financial situation and needs before recommending the most suitable option for you.
Book a meeting with Brett
Wilson Pateras Accounting Pty Ltd is a related entity of Wilson Pateras Lending and Finance (VIC) Pty Ltd and Wilson Pateras Financial Planning Pty Ltd (Wilson Pateras Group). Where you are referred to a related entity in the Wilson Pateras Group, and you take up accounting, lending or financial services, your adviser and the directors and shareholders of the Wilson Pateras Group do not receive any direct remuneration or benefit as a result of these referrals but may be entitled to profits as part of their ownership in each entity. You are free to engage your own preferred professional service providers should you prefer.
This content has been prepared by Wilson Pateras to further our commitment to proactive services and advice for our clients, by providing current information and events. Any advice is of a general nature only and does not take into account your personal objectives or financial situation. Before making any decision, you should consider your particular circumstances and whether the information is suitable to your needs including by seeking professional advice. You should also read any relevant disclosure documents. Whilst every effort has been made to verify the accuracy of this information, Wilson Pateras, its officers, employees and agents disclaim all liability, to the extent permissible by law, for any error, inaccuracy in, or omission from, the information contained above including any loss or damage suffered by any person directly or indirectly through relying on this information.
