As a mortgage broker, it's essential to educate ourselves and our clients about various aspects of home loans. One crucial factor that borrowers should be aware of is the home loan rollover rate - we have spoken about the fixed rate cliff in a past blog HERE, however, this blog will go into a little bit more detail.
In this blog post, we will explain what a home loan rollover rate is and then break the blog down into two parts: firstly, a section on ways to minimise the impact of current roll over rates, and secondly, a section on ways to avoid roll over rates in the future.
What is a Home Loan Rollover Rate? Typically, a fixed-rate mortgage lasts for a specific period, usually two to five years, during which the interest rate remains constant. A home loan rollover rate refers to the automatic change in interest rates that occurs when that fixed-rate mortgage reaches the end of its term and reverts to a variable rate. Now, this can be an increase or a reduction in rates, but in 2023 all home owners who have a fixed rate ending will be rolling onto a higher rate - some that could equal thousands of dollars a month in extra repyments.
Ways to Minimise The Impact Of Rollover Rates in 2023
Before we look at ways to avoid a 'rate cliff' in the first place, let's address ways to minimise the impact of the current/impending influx of loans rolling over to variable rates. While we can't stop the impact of these altogether, there are a few great ways you can potentially reduce any financial impact this will have on you and your family.
1. Engage the Services of a Mortgage Broker: One of the most effective ways to minimise the impact of home loan rollover rates is by working with a mortgage broker. Mortgage brokers have access to a wide range of lenders and can help you compare various deals in the market. By utilising their expertise, brokers can find you a suitable loan with a competitive interest rate, potentially shaving thousands off your annual mortgage costs.
At Neptune Finance Australia, we spend a lot of time working with clients to refinance to more favourable loans, so for an obligation free chat head to our booking page HERE and book a free call!
2. Regularly Review and Don't Wait to Refinance: It's crucial to regularly review your mortgage and consider refinancing options when your fixed-rate term is nearing completion. By proactively exploring refinancing opportunities, you can secure a new loan at a more favorable rate before (or around the time that) your current one rolls over. This approach allows you to avoid the potential increase in interest rates and potentially save a significant amount of money.
Now this may sound like a huge task, so feel free to call our team on 08 9200 4840 to get the ball rolling on this - we don't charge a fee for our service and if we can't find you a better deal we will let you know - after all, our job is to work in YOUR best interests!
3. Negotiate with Your Bank: Don't be afraid to negotiate with your bank. A well-worded call to your bank could potentially result in a small rate reduction, especially if you have been a loyal customer and have a good credit history. It's worth reaching out to discuss your options and see if they can offer you a favorable rate, thus minimising the impact of your rate roll over.
Ways to Avoid Home Loan Rollover Rates
While it's easy to say that to avoid a situation like the current rate cliff you just don't ever choose a fixed rate, this isn't something that is correct. For some clients fixed rates are a perfect option and the like the security of a stable mortgage repayment for a fixed period of time. There are also times when homeowners on fixed rates can be paying significantly less than those on a variable rate. The reality is, that you need to decide which loan setup is right for you, and part of that decision is weighing up fixed vs. variable loans. For those that do want to avoid situations like this, there are essentially 2 ways to do this:
1. Opt For a Variable Loan: A variable loan is just what it says on the packet - a loan where the interest rate can vary - sometimes multiple times a year like we are currently experiencing. A variable rate could be seen as more favourable in a market where rates are expected to lower. Essentially you start with a higher rate and then ride the rate reductions all the way down!
Keep in mind, however, that banks don't always lower rates in line with the RBA, so if the RBA choose to drop rates 0.25%, your bank may only pass on a portion of that reduction to their borrowers. We always recommend seeking independent financial advice if you don't know what is the best situation for you financially.
2. Consider Splitting Your Loan: Another strategy to avoid home loan rollover rates is to split your loan. By splitting your mortgage into multiple portions, such as a fixed-rate and a variable-rate component, you can minimize the impact of rollover rates. This approach provides flexibility in managing your mortgage and reduces the risk of being charged a higher interest rate on the entire loan when the fixed term expires. Conclusion: Home loan roll mover rates can catch borrowers by surprise and lead to increased mortgage costs. However, with proper knowledge and proactive steps, homeowners can significantly lower the impact of these rate hikes. By staying informed and taking the necessary precautions, borrowers can maintain control over their mortgage and save money in the long run.
For an obligation free chat about your home loan situation, please call us on 08 9200 4840, or head HERE to book a time to chat with our director, Chris Herbert.
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As Always - the information in this blog post is general only and shouldn't be constituted as advice. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
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