The phrase "fixed-rate cliff" has probably been used in finance news feeds. What is it then? How can you get ready for a soft landing if you're about to fly over it? The staggering 880,000 fixed-rate loans that are scheduled to mature this year will result in significantly higher mortgage payments for many Australian households in Townsville, Queensland, Brisbane, and the Gold Coast. This is due to the fact that current variable interest rates are much higher than fixed rates that were locked in previously. So today we'll examine the potential financial effects of this so-called "cliff" and how refinancing can lessen their severity
But first, what causes the impending 2023 fixed rate cliff?
Before 2020, about 20% of all Australian home loans were fixed-rate mortgages. The RBA, however, drastically reduced the cash rate during the pandemic to a record-low 0.10%, and many astute Australians seized the chance to lock in a low interest rate in early to mid-2021 for two to three years. Due to this, fixed-rate borrowing in 2021 nearly doubled to account for 40% of all Australian home loans. The low rate era was short-lived, though, as with all good things. The official cash rate has been increased once again by the RBA, to 3.60%, since May 2022. Up until now, borrowers with fixed-rate loans have enjoyed a reprieve, but beginning in 2023, 880,000 mortgage holders will see their fixed rates gradually decrease. Furthermore, CoreLogic cautions that “the pain will be felt most acutely from April” this year.
What effects can a cliff at a fixed rate have?
A mortgage holder who took out an average-sized loan of $538,936 with a fixed rate of 1.98% might experience an increase in monthly payments of over $1000 if they roll over to a standard variable rate, according to CoreLogic data. Those who locked in interest rates for 2020–2021 that were in the 1.75–2.25% range will move up to rates of up to 5–6%. That represents an increase over the minimum interest rate buffer of three percentage points that lenders use to determine whether a home loan application can be serviced.
How to properly refinance in Australia?
Lenders frequently don’t roll existing customers over to their best rates when a fixed-rate loan period comes to an end. The best interest rates are typically saved as an incentive for brand-new clients. However, by refinancing with a different lender, you can access lower introductory rates, which could ultimately result in repayment savings of thousands of dollars. Working with a broker like Premium Finance Group Australia, a leading mortgage broker in Townsville, Queensland, Brisbane, and the Gold Coast, can relieve some of the pressure you feel as a fixed rate period comes to an end. We will focus on the loans and lenders that are ideal for you using our extensive network of lenders. And perhaps most significantly, we have a duty to act in our best interests. Because of fees, high interest rates, and other unfavorable loan terms, banks and online lenders may try to entice you with cashback offers for loan products, but we’ll only ever try to match you with lenders and loans that are in your best interests.
Contact Us
Are you facing the impending "fixed-rate cliff" in 2023?
Don't wait for the financial impact to hit you – take action now to secure your financial stability.
Premium Finance Group Australia, your trusted finance broker in Townsville, Queensland, is here to guide you through this challenging period and help you find the best refinancing options. Our team of experts is ready to assist you in navigating the changing landscape of fixed-rate mortgages. Whether you need to refinance, explore loan extensions, consolidate debt, or create a cash reserve, we have solutions tailored to your unique situation.
To learn more, contact Premium Finance Group Australia at 1800 413 635 or email us at finance@pfga.com.au
