Borrowers coming off fixed rates risk falling off a mortgage cliff as their repayments skyrocket.
Many are expected to absorb the full four per cent increase in the cash rate that’s occurred over the past year, a figure that will increase their repayments by up to 63 per cent according to Canstar.
Those who took on a two-year fixed loan rate in 2021 at the rock bottom 2.21 per cent rate offered by banks at the time could see repayments on a $500,000 loan rise by $1200 to $3101 per month based on the average variable rate of 6.57 per cent.
It‘s a similar scenario for those who chose a three-year rate in 2020 when the average rate was 2.61 per cent.
They face a 53 per cent increase in their repayments taking the monthly commitment on a $500,000 loan from $2,004 to $3,074.
The RBA estimates that half of all fixed-rate home loans will expire this year, worth an estimated $350 billion.
The problem could worsen if, as NAB and Westpac predict, the cash rate rises further in the future.
“Fixed-rate borrowers have not had the past year to acclimatise to higher interest rates. They have avoided the pain of adjusting their budget for higher loan repayments but will be on the receiving end of the Reserve Bank’s 12 cash increases over the past year all in one huge hit,” Canstar finance expert Steve Mickenbecker said.
“To help cope with the inevitable higher repayments, any borrower with a fixed period still to run should be making the necessary adjustments now and be putting themselves ahead with extra repayments.”
Mr Mickenbecker also advises borrowers to check with their lender to see what rate they can expect when their fixed term comes to an end, adding that “most will be suitably shocked”.
“There will almost inevitably be better deals available with your current lender or a competitor. Now is the time to market yourself around,” he said.
“Refinancing into one of the lowest interest rate loans will ease the higher repayment burden and is a must for every borrower. It won’t save borrowers altogether from repayment pain, but it will provide hundreds of dollars that won’t have to be found elsewhere in the family budget.
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