What happens at the end of your home loan’s fixed term?

If your mortgage is coming to the end of its fixed term, you might be confused or worried about what happens next.
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However, this period provides borrowers with a great opportunity to review their home loan product and make the best decision with regards to their personal and financial circumstances. In the months leading up to the fixed term's completion, do your research on the home loan market and ensure you have a good knowledge of your own mortgage. 

An easy way to break down your options is to consider the three R's: Refix, Refinance and Revert. 

Refix

When your fixed-rate term expires, you can choose to refix your home loan, provided your lender allows it. 

Typically, the maximum amount of time you can fix for is five years. It's important to remember that fixing could see you potentially miss out on thousands of dollars saved, should interest rates drop. Fixing also probably isn't the best option if you plan to sell or renovate, or if you plan to make lots of extra repayments. 

Refinance

At the end of your fixed term, make a pricing request to your existing lender to ensure you have a competitive interest rate. If you find it's an average deal, you may want to refinance. There's a hugely competitive home loan market currently, so it's worth checking out and comparing home loan rates. If you refinance, you may be subject to conversion fees, however, this upfront cost could save you thousands over the course of your loan. 

Refinancing will also mean you'll have to choose between a fixed or variable loan. With a variable loan, you'll be getting a more competitive interest rate and more flexibility with your mortgage, plus you can make extra repayments and pay off your loan quicker. On the other hand you could fix to take advantage of low interest rate, but keep in mind the restrictions associated with this. 

Another option is to refinance to a split loan, to take advantage of both products. One portion of your loan would be charged at a fixed rate, while the other is charged at the variable rate. 

How you split the amount is completely your decision and this option affords you the security of a fixed loan while taking advantage of the features of a variable loan. 

Revert

It pays to read the fine print of your home loan, as it will tell you how your interest rate will be handled, should you take no action at the end of your fixed term. 

Typically, doing nothing will see your rate revert with no additional costs or paperwork. Your interest rate will usually revert to whatever the standard variable rate is that the lender offers. 

It's for this reason you should consult your lender when this happens, as this standard rate can be considerably higher than the lower rates on the market. You still have the option to refinance at a later date, which can often be a good option should interest rates continue to be cut. 

Can I break the fixed term of my mortgage?

It's possible to break the fixed term of your mortgage but it can be expensive and difficult. 

Ways in which its considered 'breaking' a fixed home loan include: 

  • Repaying the loan in full before the fixed-rate period ends
  • Refinancing 
  • Making extra home loan repayments beyond which is acceptable in your fixed-rate period 

Every lender will have different rules regarding the fees incurred when breaking the fixed-rate term. 

Typically you'll be subject to two fees:

  • Early repayment adjustment/break fee/early exit fee
  • A discharge fee

The early repayment fee is the more expensive fee, costing potentially thousands of dollars while the discharge fee typically costs a couple of hundred dollars.

Tags: fixed rate home loan | fixed terms

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