There has been a lot of chatter around the fixed rate cliff that a large percentage of mortgage holders are approaching or have already arrived at. But what is the fixed rate cliff and what does it mean?

What is the Fixed Rate Cliff?

The fixed rate mortgage cliff is a term describing those mortgage holders coming to the end of a fixed rate term and are facing an unusually high increase in their repayments. It is also a phenomenon that is being experienced by or about to be experienced by some 800,000 mortgage holders in Australia by the end of this year.

When the RBA dropped the cash rate to an historic low in 2020, this flowed through to equally historic low home loan interest rates with many locking in enticingly cheap fixed terms. These are now starting to expire and unlike the mortgage holders with variable rates who have weathered gradual increases as rates have risen, those on fixed rates will see their repayments increase exponentially.

What can borrowers do to prepare?

The best strategy is to get on the front foot and speak to your mortgage broker to find out what may be a good option for you.

Reprice your current loan

Once the fixed rate term is up, have your mortgage broker approach your lender to see what additional interest rate discount they are willing to offer. This can achieve substantial savings in many cases and will be applied almost instantaneously once the discounted rate is accepted.

Switch your product

Whether it be refixing, if your lender does have and fixed rates worth considering, or reviewing what other products they have available, doing an internal refinance may be a quick and simple option. Many lenders have refreshed their products recently and if there is another offering you’d like to opt for, your mortgage broker can arrange that for you and in most cases just by submitting a simple request to the bank.

Refinance

If your current lender’s offering does not stack up well compared to the rest of the market then your mortgage broker can guide you through your refinance options, assuming you qualify to do so. There are still lenders offering sizable cashbacks to win your business, though some have started withdrawing these incentives.  Either way, your mortgage broker can guide you into what will be a cost-effective option moving forward.

If your fixed rate loan has expired or is about to, we strongly urge you to contact your Blackburne Mortgage Broker to review your options to ensure you have a cost-effective and suitable loan moving forward.