The upcoming year will continue to see a surge in refinancing activity, with large volumes of fixed-rate mortgages set to expire in the June, September, and December quarters, requiring borrowers to convert from ultra-cheap fixed rates of around 2% to variable rates of around 6%, which will add thousands of dollars a year in repayments on the typical mortgage.
Fixed Mortgages Rate Cliff
The quarter ending in June will see around three times the number of mortgages expire (222,800) as in the preceding quarter (78,300), with a significant number of fixed rate mortgages expirations in the quarters ending September (208,000) and December (184,000). This Fixed Mortgages Rate Cliff will be a challenging time for hundreds of thousands of borrowers who are exiting low-cost fixed-rate mortgages.
For instance, Steven De Celis, a Sydney homeowner, is one such borrower. His $1.6 million fixed rate mortgage is set to expire in June, with his repayments set to rise from $69,000 a year to almost $110,000. De Celis is anxious about the possible financial impact, noting that he is "going to get absolutely slammed."
The upcoming months will be challenging, but borrowers can lessen the impact by ensuring they pay the lowest possible mortgage rate. Peter King, CEO of Westpac, notes that he is witnessing "the most competitive market I’ve seen in mortgages in my career." The current market volatility means significant savings can be had if borrowers shop around and negotiate the best rates. To make the most of such opportunities, homeowners must make the banks fight for their dollar.
Reducing Financial Damage
With the potential for financial damage looming in the form of a significant increase in repayment amounts, it is crucial that homeowners look to reduce this potential impact. Refinancing mortgage loans might seem like an insignificant step, but it can be incredibly beneficial for homeowners looking to reduce their financial burden.
Refinancing involves paying off an existing mortgage with a new one, often at lower interest rates, to reduce the repayment amount. If done right, mortgage refinancing can lead to significant cost savings, freeing up cash that can be put toward savings or other financial goals.
The refinancing option may not be right for everyone, so it's essential to consider several factors before making such a decision. To determine if refinancing is the right move, homeowners should ask themselves two critical questions:
- Have interest rates significantly dropped since you took out your current mortgage?
- Do you intend to stay in your home for an extended period?
If the answer to both of these questions is yes, then refinancing might be an excellent option to consider. Additionally, homeowners should review their current financial situation, taking into account their credit score and outstanding debts, as these factors can affect the refinancing process's success.
Conclusion
The Fixed Mortgages Rate Cliff will significantly impact borrowers exiting low fixed-rate mortgages in the upcoming months. However, homeowners can make the most of this event by being proactive and doing their due diligence in finding the best possible rates in the market. In addition, borrowers exiting fixed-rate mortgages should evaluate their financial situation and consider refinancing options to reduce the financial burden. Australians can prepare for these and other economic uncertainties by adjusting their financial strategies to accommodate market changes.
Published: Monday 10th April, 2023
Last updated: Monday 10th April, 2023
Please Note: If this information affects you or is relevant to your circumstances, seek advice from a licensed professional.
